The Hindu Business Line : `Feel good' factor extends to tractors

DOUBLE-DIGIT percentage decline over the past three years did not prevent the tractor segment from gaining from the feelgood factor in the economy in 2003.

Tractor sales may not exactly have spurted during the year, but the good monsoon resulted in a reversal in trend, which even managed to see marginal growth towards the last few months.

The Rs 6,000-crore tractor industry is believed to have declined from 2,66,000 units in 1999-2000 to 1,59,000 units in 2002-03. The last fiscal alone saw a decline of 26 per cent in the tractor industry.

Significantly, 2003 has been a year of corrections for the industry beset by high inventories and poor financial health.

According to industry estimates, inventory levels have fallen to 3-4 months from the 6-7 months earlier. A level of three months is considered to be sustainable.

This was a result of the decision taken by the major players earlier this year to curb production and halt the practice of advance selling (the credit given by the dealer to the customer).

Other positive initiatives taken by the industry this year have resulted in a drop in interest rates on finance schemes for tractors and simpler procedures involved in getting a loan.

For instance, the size of the farm that a farmer is required to own to avail of a loan has been lowered from seven acres to 4-5 acres. The last few months have also seen tractor companies tying up with various banks to provide more attractive finance schemes.

An industry official said, "More significant than the increase in sales is that tractor companies have been able to improve their financial position through corrective and cost-reducing measures."

Escorts, for instance, is targeting to reduce cost per unit by Rs 7,500 this fiscal, of which Rs 2,500 will come from manufacturing a principal component in-house.

Another significant development was the strengthening of exports of Indian tractors to markets as far away as the US and Europe.

According to an industry official, exports are growing at upwards of 50 per cent.

Major exporters include Mahindra & Mahindra - which made a bid to buy Finnish tractor manufacturer, Valtra, this year - and Escorts, which is set to buy the stake of its joint venture partner in Long Agribusiness LLC, the US subsidiary.

Exports are set to get a further fillip this year with multinational companies making India a hub for tractors. This includes Renault Agriculture, which will begin sourcing the Ceres range of tractors through its local partner, International Tractors.

Article E-Mail :: Comment :: Syndication

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