Domestic tractor volumes to cross 8.5 lakh units?

Last Updated: Sun, Oct 14, 2012 10:14 hrs

New Delhi, Oct 14 (IBNS) Growing at a compounded annual growth rate (CAGR) of over 20 per cent, the domestic tractor industry (in volume terms) is likely to grow from the current level of about 5 lakh units to about 8.6 lakh units by 2015, apex industry body ASSOCHAM said.

Northern India accounts for over 50 per cent of market share with states like Punjab, Haryana and Uttar Pradesh enjoying significantly higher penetration levels, followed by the western region, according to a study titled 'Second Green Revolution: Agriculture to Agribusiness,' released by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

As per a region-wise market analysis of tractor industry, north India accounts for 55 per cent followed by western states (24 per cent), south (15 per cent) and east India accounts for the least about six per cent of tractor sales in India.

"Rising rural liquidity together with high disposable income of farmers due to government social schemes like Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) are collectively contributing to growth of tractor industry which has provided the necessary push for greater farm mechanization," said D.S. Rawat, national secretary general of ASSOCHAM while releasing the findings of the chamber's study.

"Besides, increasing application of tractors for non-farm operations like infrastructure and construction projects, transportation, haulage and better crop realization through higher minimum support prices (MSPs) clubbed with continued government support through increase in budget outlays for agri sector and increasing farm labour costs due to scarcity are other key growth drivers of tractor industry," said Rawat.

An increased domestic demand for replacement market is another significant reason behind strong tractor demand as average life-cycle of tractors has reduced from over 10-12 years to just about 8-9 years. "Currently almost 40 per cent of domestic tractor demand in India is driven by replacement market," said Rawat.

Besides, easy access to tractor loans by commercial banks together with an innovative credit delivery system like Kisan Credit Card and others has also led to the growth of this industry, according to the ASSOCHAM study.

"Growth in institutional farm credit can be gauged from the fact that it increased at a CAGR of 19 per cent thereby clocking over Rs four lakh crore in the FY11," said Rawat.

The domestic tractor industry which has traditionally been a medium horsepower (HP) market with 31-40 HP tractors accounting for about 42 per cent of industry volumes, the ASSOCHAM study points out towards a shift in the trend with a higher growth in the upper and lower HP segments and moderate growth in medium HP segment.

"A growth in penetration in southern India (traditionally a high HP market), replacement demand in the north and increased use of tractors in non-agricultural applications and growth in exports are certain factors responsible for such a structural shift in the industry towards higher HP tractors," highlights the ASSOCHAM study.

At the same time, an increased presence of small and marginal farmers with about 40 per cent area under cultivation, scarcity of farm labour and rising costs of bullock carts coupled with higher efficiency of low HP tractors are certain factors that are collectively responsible for growth of low HP segment.

Apart from being used in farming and crop cultivation, tractors find application in activities like harvesting, canal irrigation, land reclamation, drawing water, powering agricultural implements and serves as a multi-utility vehicles, this has expanded the domestic tractor market, said the ASSOCHAM report.

India is the largest tractor manufacturer in the world and accounts for about one-third of the global tractor production.

According to the ASSOCHAM study, Indian tractor industry has 13 national players and few regional players. The industry is dominated by Mahindra and Mahindra (M&M) with a share of about 40 per cent, followed by Tractors and Farm Equipment (TAFE) with a share of about 23 per cent, Escorts (13 per cent), L&T-John Deere (10 per cent) and International Tractors Limited (over eight per cent).

The tractor manufacturers are witnessing margin contraction due to constant hardening of rubber and steel prices leading to hike in input cost inflation, said the study. Besides, decline in farm gate prices affecting the farmer's profitability might affect the demand for tractors.

More from Sify: