Retail sales of vehicles in India rose 21% in December, their fastest pace in 2023, led by strong demand for two-wheelers and high discounts on passenger cars, a dealers' body said on Monday.

Sales of motorcycles and scooters rose 28% to 1.45 million units in the month, the tail end of the year's wedding season, data from the Federation of Automobile Dealers Association (FADA) showed. Overall retail sales had fallen 5.4% in December 2022 on weak two-wheeler demand.

"India is witnessing approximately 3.8 million weddings between Nov. 23 – Dec. 15, a period that typically sees high vehicle sales, especially in rural India," FADA, which counts vehicle sales by dealers to customers, had said in November.

Last week, data from automakers also indicated strong two-wheeler sales.

Analysts had turned more bullish on two-wheeler sales, with brokerage Elara saying last year that they saw a revival in domestic two-wheeler volumes.

Conversely, brokerages had forecast slowing growth for passenger vehicles (PVs), which include small cars, sedans and sport utility vehicles (SUVs), as pent-up demand was fading.

Sales of PVs grew just 2.7% in December, driven mostly by demand for SUVs as high discounts only helped clear a small amount of excess inventory, said FADA.

High discounts on smaller cars – which formed a bulk of dealers' excess inventory in the fiscal year that began in April – helped bring down PV inventory slightly to 55-58 days from 61-64 days in November.

While 21 days is the recommended level for PVs, any inventory level above 30 days is loss-making for dealers, FADA President Manish Raj Singhania told Reuters.

New launches will help the auto industry grow in 2024, said FADA, but added it was "cautiously optimistic" for January due to high PV inventory levels. (Reporting by Nandan Mandayam in Bengaluru; Editing by Janane Venkatraman )