Monsoon, Loan Waivers To Drive Tractor Sales

An employee drives a tractor to parking bay (Photographer: Prashanth Vishwanathan/Bloomberg)

Written by
Krishanu Mukherji
Written by

Krishanu Mukherji

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A second straight year of normal rains and loan waivers doled out by state governments are expected boost sales of farm equipment over the next few months.

Market leader Mahindra & Mahindra Ltd.'s sales grew 7 percent to 17,682 units in July over the same month last year. Escorts Ltd. reported a growth of 34.3 percent at 5,418 units year-on-year. Tractors and Farm Equipment Ltd. (TAFE), the second-largest player in the market, is yet to release its numbers.

Rainfall till July 30 this year was at 102 percent of the long-period average and the weatherman has forecast rains to be at 98 percent of the LPA through the season, with an error margin of 4 percent on either side.

Monsoon irrigates more than half of India's cultivated land, according to Agriculture Census 2010-11. That makes it a driving factor for rural spending and the country's economy at large. A near-drought situation through 2014 and 2015 shrunk rural incomes. Cash crunch after demonetisation offset the impact of normal rains last year.

“Purchases were postponed over the last two years. Plus, with the farm loan waivers, farmers have a lot more cash available,” said Abdul Majeed, partner-assurance at PwC India, and a sector expert. “These two factors have created a positive setting for tractor sales.”

Ratings agency ICRA, in its report on the tractor segment in India, said it expected volumes to grow between 9-10 percent in 2017-18 over the last financial year on the back of good south-west monsoon rains.

This (good monsoon), coupled with an expectation of improvement in non-farm income, supported by the government's thrust on rural spending, infrastructure creation and irrigation spending, is likely to drive the demand for tractors.

ICRA Report

The government's efforts to double farm incomes by 2020 is also expected help the tractor market expand.

Agriculture's contribution to GDP is falling. It was down to 15 percent this year (2016-17) from 20 percent last year (2015-16), but the government is taking initiatives in the rural sector, so the outlook for the tractor segment remains positive, at least for the next 12 months.

Abdul Majeed, Partner-Assurance, PwC India

Majeed expected the segment to clock double-digit year-on-year growth in the ongoing financial year. The only concern, he said, was if monsoon rains were to lessen during the second half.

The farm segment in India is not very mechanised compared to even some African nations, with cabin-fitted tractors yet not having made it to the country. This too can work in favour of the market, opening an opportunity for manufacturers.

Also Read: Why Escorts Failed To Sell More Tractors In June