Financial Daily from THE HINDU group of publications
Sunday, May 25, 2003
Industry & Economy - HCV/LCV/Tractors
Columns - In Focus
For the tractor industry... Much depends on the monsoon
With the onset of the monsoon close at hand, the tractor manufacturers will wait with bated breath for the rains to begin in the South. After all, the double whammy of consecutive low precipitation years and stagnant crop purchases by the Government has had a lasting impact on farm incomes, and as a result on tractor sales.
This shows in the industry's annual numbers. Official figures are yet to be the released by the Tractor Manufacturers Association (TMA) for the full year 2002-03. But current estimates put the total tractors sold by the organised segment at just about 1.7 lakh tractors. From a high of about 2.75 lakh tractors in the year 1997-98 the sales volumes have declined to the current levels.
Including the unorganised manufacturers, the current fiscal could close with sub-two lakh tractor sales for the first time in 10 years. Overall, the industry is expecting a fall of about 14 per cent in sales this year. This is better than the 16 per cent negative growth recorded last year, but the base on which the calculations are made is constantly shrinking.
In comparison to the sub-two lakh sales position for 2002-03, the TMA figures put the total cumulative industry sales for 2001-02 at 2,15,609 tractors and for 2000-01 at 2,49,572 tractors.
The current fiscal is again expected to pose challenges for the tractor manufacturers. However, the industry is unanimous in expressing hope that the monsoon may turn out to be better than what has been forecast. It is still too early to predict the monsoon's success or otherwise. But the "met" department's estimation has brought some cheer to the tractor manufacturers.
Ironically, the industry's optimism is despite the department's warning that the monsoons this year will be lower than normal. Tractor manufacturers however, point out that this projection of lower than normal is a "twister".
The meteorological department has reclassified its monsoon data. According to the new classification, precipitation levels from this year's monsoon has been put at 96 per cent, a four per cent drop in absolute terms from the department's reclassified normal monsoon.
However, tractor makers point out that the 96 per cent precipitation, if achieved, will actually be about 20 per cent more than last year. This surely means better prospects for the farming community.
The 96 per cent normalcy predicted for this year's monsoon may be music to the ears of the tractor makers. But there still are few more "unpredictables" that can blow the wind out of their sails.
One is that in addition to the level of precipitation, the other important factor that will govern a possible increase in demand of tractors is the spread of the precipitation from the monsoon. The other unpredictable, at least as of now, is the Government's procurement programme for the year.
The key States of Punjab, Haryana, Rajasthan, Uttar Pradesh, Madhya Pradesh and Maharashtra will determine the potential demand for tractors this year. The demand has been subdued in at least three of these States due to the drought that hit them in the last two years.
Current industry estimates regarding potential tractor demand for the year put Punjab and Haryana as near normal. However, demand from Uttar Pradesh is expected to be sluggish going by the current trends.
Interestingly, tractor manufacturers have converted the adversity of the drought last year into an opportunity to reduce their transit (dealer) inventory. The top manufacturers have been able to drastically cut down on the inventory pile up at the wholesale level. Escorts, for example, is estimated to have sold about 30,000 tractors last year at the retail level and only about 21,000 units at the dealer (wholesale) level.
As the monsoon progresses, two constituents in this sector will be viewing it with trepidation and hope the farmer and the tractor maker. The wait will not be long as July rains, crucial for determining the crop yields, are just another month or so away.
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