Indian tractor industry is expected to end this fiscal with a new peak in domestic volume level hitting 9 lakh plus units, aided by favourable factors.

This is likely the first time India has had four consecutive ‘normal’ monsoons that have aided farm cash flows. Also, the industry saw significant rebound in the post-Covid period following higher spending on agriculture and rural programmes by the government.

As a result, the past two fiscals saw the tractor industry achieve high annual domestic volumes. FY21 saw the industry report all-time high domestic sales of 8.99 lakh units, while FY22 saw some moderation with total volumes at 8.42 lakh.

However, the current fiscal is expected to witness the industry hitting a new all-time high as demand has remained steady. During the 10-month period of this fiscal, total domestic tractor sales grew by 11.5 per cent at 8 lakh units, compared with 7.17 lakh units in the same period previous fiscal. Total production increased to 9.04 lakh units compared with 8.42 lakh units.

Read also: John Deere India expects tractor market to remain good

“We expect the tractor industry to grow over 10 per cent.” Rajesh Jejurikar, Executive Director – Auto & Farm Sectors, Mahindra Mahindra, had said during the company’s recent earnings call.. “We had projected a growth rate of a little over five per cent. But, the last three months have been better than what we had expected. At this point, we feel comfortable that it will achieve a 10% growth for the year,” he added.

Improved government spending in rural and agriculture segments has helped drive demand. The terms of trade with farmers have also improved significantly. Mandi prices of most crops, especially wheat, were higher than the MSPs. And that’s enabling better returns for farmers. “The terms of trade are not back to the earlier levels, but they are much better than what we had anticipated, and we’ve seen that is a key enabling factor,” he added.

Rating agency Icra has said that apart from healthy monsoon precipitation, stable crop realisations/yields were an enabling factor. “Retail sale trends were positive over the past few months despite a delayed kharif harvest. However, healthy rabi sowing pace provides optimism for growth,” said Shamsher Dewan, Senior Vice President & Group Head.

Meanwhile, availability of financing was also a major driver of sales. “NBFCs remain the preferred financing partner, given the fast-processing and extensive reach. Various loan schemes and easy installments linked to crop cycle, continue to support dependence on financing, he added.

With the rising scarcity of availabie farm labourers, tractor penetration in India has been increasing gradually over the years, supported by continued government support measures and healthy financing availability. The penetration level (ie, the number of tractors per 1,000 hectares) has increased from 34 per cent in FY15 to 56 per cent in FY22.

Meanwhile, the revised emission norms (Bharat Stage TREM IV) came into force on January 1, 2023, after having been postponed on multiple occasions. But this is applicable for tractors with engines higher than 50 HP (horsepower), while tractors with HP below that level constituted about 92 per cent of sales in FY22 and would continue to be governed by Bharat Stage TREM IIIA norms.

The new norms under Bharat TREM IV call for significant technological changes in tractors in a bid to reduce pollution effects. Cost increase on account of revised emission norms is estimated in the range of 10-15 per cent, which tractor makers will gradually pass on to customers.

Related Topics
comment COMMENT NOW