Product innovation, availability of retail finance for small farm machinery to drive mechanisation

Product innovation and retail finance support through government push in the small farm machinery segment will drive higher levels of farm mechanisation in India comparable to advanced economies, industry representatives say.

A recent RBI report has pointed out that the extent of farm mechanisation in India has increased over the years and the current level of farm mechanisation is estimated at 40-45 per cent. But, it is much lower compared to other advanced economies and the BRICS countries such as the US (95 per cent), Western Europe (95 per cent), Russia (80 per cent), Brazil (75 per cent) and China (48 per cent).

Limited market

Although the density of tractors has increased substantially over the years, the market for other farm equipment including power tillers, rotavator and transplanters is still limited and much unorganised (15 per cent of the farm equipment market). The small and scattered land holdings reduce scale advantages and thus act as a major hurdle in further expansion of farm mechanisation in India, it said.

Farm mechanisation has the potential to enhance agricultural productivity by 30 per cent and reduce the input cost by 20 per cent. Mechanised farming also reduces the time required to complete farm operations and softens the drudgery innately associated with agriculture labour.

“What we have so far seen is tractorisation, not farm mechanisation in the country,’‘ said Antony Cherukara, CEO, VST Tillers Tractors Ltd, a leading player in the small farm machinery sector.

About 70 per cent of Indian farmers are small and marginal and they cannot access tractors that are priced at ₹6-7 lakh. These small farmers need affordable solutions in the area of power tillers, rice transplanters etc.

“Product innovation should happen in this area and we can’t just import what is there in other markets and use it here. We need India specific, affordable small farm machinery suitable for these small farmers,” added Cherukara.

Retail financing

To increase penetration, the government’s support by way of retail finance is described as a major factor. There should be specific targets given to the banks by the Nabard for funding small farm machinery, not tractors, by small and marginal farmers.

Under priority sector lending (PSL), loans are extended to agri mechanisation. Banks wouldn’t know the details about the equipment. So, most of the retail loans are availed by the medium and rich farmers for buying tractors. “Hence, the government must fix a target under PSL to sell small farm equipment other than tractors. This will definitely give a big boost to farm mechanisation in the country,” he said.

There has been good traction for power tillers and VST Tillers has been growing at a CAGR of about 30 per cent in the last two years. It expects to maintain the growth momentum as these machines are affordable for small farmers. Other small farm machineries such as power weeders have also been reporting 100 per cent growth year-on-year in the past 5-6 years.

“As labourers are becoming scarce and dependency on subsidies is also going away, there is a growing demand for affordable small farm machinery and a new set of products have also started to hit the market of late, said an analyst with a leading brokerage house.