Agriculture and Tractor

Topics: Agriculture, Tractor unit, Capitalism Pages: 12 (3697 words) Published: September 9, 2010
The tractor industry reported a strong 28.3% growth in sales volumes during 2009-10, thereby ending the phase of cyclical correction that had pulled down tractor sales during the preceding two years (200709). Significantly, the revival of 2009-10 happened despite the droughtlike conditions in many States during the kharif1 season dampening sentiments. The key factor enabling the demand growth of 2009-10 was strong rural liquidity, which in turn was sustained by several factors, including: higher minimum support price (MSP) for crops; greater ability of farmers to make cash purchases (including the usage of Kisan Credit Card which are increasingly being used to part-finance tractor purchases); enhanced employment opportunities (with rural employment schemes being implemented by the Government of India); an improved credit environment; and continuance of replacement demand. These factors apart, non-agricultural use of tractors (for haulage in construction and infrastructure projects) continued to increase, benefiting tractor demand. Also, with infrastructure projects and rural employment schemes increasing employment opportunities, availability of labour for agricultural activities continued to decline, persuading even farmers with medium-sized land holdings to either rent or purchase tractors. On a regional basis, the performance of the eastern, northern and western parts of the country was robust during 2009-10 in terms of tractor demand, while that of the southern region was moderate. A strong growth in tractor volumes, albeit on a low base, was witnessed in the eastern States, including Bihar, Orissa and Jharkhand, which had a good paddy crop. Tractor volumes in the northern and western regions also reported strong growth during 2009-10, especially in the second half (H2) of the year, benefiting from a low base (H2, 2008-09) and a satisfactory kharif crop in some States. The southern region reported moderate performance in terms of tractor demand (growth of 11.9% in 2009-10), being impacted largely by the de-growth in Andhra Pradesh (AP)—a key southern market—where rainfall was irregular in 2009-10. However, in Karnataka and Tamil Nadu, higher MSPs for rice along with some revival of interest of public sector banks (PSBs) in tractor financing led to strong tractor sales volumes. Historically, tractor demand has been fairly volatile, being influenced by cyclical trends, availability of finance, and crop patterns (monsoon). After four years of strong growth during 2003-07, the fiscal years 200708 and 2008-09 both reported a marginal decline in tractor sales volumes, largely reflecting cyclical corrections. In addition to the cyclical dips, during H2, 2008-09, the industry also had to cope with the


Kharif season in India is during the south-west monsoon (June-October)

ICRA Rating Feature

Tractor Industry: An ICRA Perspective

liquidity crunch, which pushed up interest rates, even as financiers resorted to more stringent lending norms in the face of rising non-performing assets (NPAs). However, the situation improved during 200910 as credit availability improved on the strength of greater liquidity in the banking system. While tractor financing has traditionally been done by PSBs, of late, private banks and non-banking finance companies (NBFCs), despite their higher interest rates vis-à-vis the PSBs, have been able to increase their penetration of this market on the strength of faster loan processing and use of more liberal credit norms. Overall, with tractor demand being closely linked to agricultural output, growth in farm mechanisation and farmers’ remuneration, the long-term demand drivers for the industry remain robust. The currently low levels of tractor penetration in India, strong Governmental focus on availability of finance for agriculture mechanization tools and on rural development, increase in the use of tractors for nonagricultural purposes, and the growing emphasis on tractor exports...
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