The total tractor sales in the country are expected to touch a new peak of 6.5 lakh units during this fiscal, according to Crisil.
Three factors are to drive record tractor volumes this fiscal. They include prospects of a successive normal monsoon, declining interest rates and farm loan waivers by states.
Despite the effects of demonetisation, tractor sales rose 18 per cent in 2016-17 due to good rains that boosted rural income. This growth came after two successive years of decline in tractor sales on the back of poor monsoon.
Yet last fiscal’s sales, at 5.8 lakh units, were lower than in 2014, suggesting some pent-up demand could manifest given conducive conditions.
The Indian Meteorological Department (IMD) has predicted a normal monsoon this fiscal, too. And thus far, showers have been well-distributed, with cumulative rainfall at 102 per cent of the long period average.
While the cascade of good tidings from weather to farm to farmer is on, there is another structural positive to note, which is that average tractor penetration in India is very low at about 20 per 1,000 hectare. That underlines the kind of headroom for growth available over the long term,” said Manish Gupta, Director, CRISIL Ratings.
Additionally, the farm loan waivers in states such as Maharashtra, Punjab, and Uttar Pradesh which account for more than a quarter of the domestic tractor sales – plus the fact that other states could follow suit -- will put money in the hands of the farmers. This, along with declining credit cost will support tractor sales. The increase in minimum support price will also help.
Data suggest loan waivers can also offset the adverse impact of bad monsoons on tractor sales.
The waiver announced by the central government in fiscal 2009 had led to 30 per cent growth in tractor sales in 2010 despite deficient monsoon in that year.
But, in the longer term, there are some tailwinds too - a doubling of budgetary allocation for long-term irrigation funds, expansion of crop insurance coverage, sharper focus on mechanisation, and increasing usage of tractors beyond tilling and haulage.
In the very near term, the extent of farm loan waivers and the spatial and temporal distribution of rains will be key monitorables, it said.