The Indian Tractor industry is expected record a volume growth of 9-10% in the current fiscal according to rating agency ICRA. Expected healthy monsoon precipitation coupled with healthy reservoir levels (apart from the Southern region) augurs well for farm output in the current fiscal. This, 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. .
Says Subrata Ray, Senior Group Vice President, ICRA, “Over the long term, ICRA continues to maintain a CAGR estimate of 8-9% for the industry. The long term industry drivers for the industry continue to remain intact. The government of India (GOI) remains committed towards rural development and agro-mechanization, a critical component in improving the state of agriculture in the country. Also, continued support towards enhancing irrigation penetration through fresh allocations would reduce rainfall dependence. This coupled with other factors such as increasing rural wages and scarcity of farm labour is likely to aid growth in industry volumes.”
The Indian Meteorological Department (IMD) in its second long range forecast has inferred southwest monsoon rainfall for the current fiscal at 98% of the long period average (LPA), with a model error of +/-4%. Coupled with eased concerns over the formation of El Nino in the current fiscal, a fairly well distributed rainfall over the monsoon period is projected. In case the monsoon precipitation remains in line with these expectations, a likelihood of a higher crop production augurs well for farm sentiments, even as the prices of key agricultural commodities remain muted.
In the absence of adequate irrigation facilities, a healthy south west monsoon remains critical for the fortunes of the farm sector. The farm produce in states like Rajasthan, Karnataka, Andhra, Telengana, Maharashtra, Madhya Pradesh, Chhatisgarh and Jharkhand remains highly dependent on healthy precipitation of monsoon. On the other hand states like Punjab, Haryana and Uttar Pradesh are relatively less dependent on monsoon due to better irrigation facilities.
Although India continues to remain a medium HP (31-50 HP) market, over the past few years, there has been an enhanced interest in the sub 30 HP and >51 HP segments, with most OEMs launching new products in these two sub segments of tractor market. While the government’s push for increased farm mechanisation by subsidising tractor purchases is likely to aid sales in the lower HP segment, a continued customer shift towards increased usage of various agro-implements is likely to lead to a further increase in market size for high HP tractors over the long term.
Tractor volumes reported a healthy growth during FY2017, boosted by improving farm sentiments following healthy southwest monsoon and expectations of better cash flows in the backdrop of strong growth in kharif and rabi crop production. Additionally, government support programmes in various states also supported demand to an extent. The volumes suffered a blip in November, 2016 following demonetization, however, domestic volumes recovered quickly to a moderate to healthy growth in volumes during December 2016-March 2017. In April and May, 2017 also, leading tractor OEMs have reported robust double digit growth rates in domestic volumes. In contrast to healthy demand growth in the domestic market, tractor exports market remained weak during FY2017, with the weak demand in the global markets attributable to high supplies of commodities and accompanying fall in crop prices across various markets.