The Indian tractor industry, which grew at a high double-digit rate last fiscal, has seen some moderation due to cyclical impact and demand crunch in the rural market. The experts at the Garret ETAuto Farm Equipment Virtual Summit 2021 discussing the prospects of tractor demand in India projected a 5%-6% growth in FY22.
The conservative forecast comes at the back of the impact of the second wave of Corona which, unlike the first wave, had a massive impact in the hinterlands.
“We expect the domestic market to be around 950,000 units this year, the growth will be driven by the increase in MSP,” says Bharatendu Kapoor, President- Sales & Marketing, TAFE.
We expect the domestic market to be around 950,000 units this year, the growth will be driven by the increase in MSPBharatendu Kapoor, President, Sales & Marketing, TAFE
India holds the pole position with an annual production of about a million units in FY21, almost half of the global volume. Last year the domestic sales stood at 900,000 and exports were at 100,000 units.
India’s tractor industry contributes USD 4 billion to 5 billion to the country’s automotive component industry.
The tractor demand is mainly seen as a derivative of the rural economy and farming. The agriculture and farming sector contributes about 16% to India’s GDP. There are a lot of opportunities and utilities for tractors beyond the farm and rural sectors.
To India’s overall economy, the rural sector contributes 45%. Out of this a maximum of 30% is from the small-scale industries involved in manufacturing and services.
The speakers at the forum have pointed out some of the challenges and opportunities for the tractor industry which needs reforms by the government and industry.
The major challenges include lack of adequate testing facility, the need for modernisation of tractors, finance, Trem IV implementation from next month, the rising cost of materials, improper execution of subsidies and a long retailing process.
Lack of adequate testing facility: There is only one tractor testing facility in India and it takes an exorbitantly long waiting period of about 3-4 years of testing and once the turn comes it takes a year to get a result this is a major hindrance.
Need for modernisation of tractors: The tractors available right now might be good for now but need major changes in the future.
Finance: Finance remains one of the main road blocks with very few players and several limitations. Even as the tractor’s acquisition cost has increased by INR 40,000-INR50,000 in the last six months, the financing option has either reduced or remained at the same level. Most of the farmers do not have credit history thus they are put in the negative list.
Trem IV implementation from next month: At present tractors above 50 HP, where new emission norms are applicable, accounts for only 7%-8% of industry thus the impact is only minimal. It is expected that about 5% of the buyers will shift to below 50 hp category.
The rising cost of Fuel, Urea, and Fertiliser: The cost of production has increased by INR 2100 per hectare last year mainly due to a surge in diesel price while the price of urea and non-urea fertilizers has also gone up. However, the impact was slightly assuaged as the MSP went up by 8%-10% last year.
Improper execution of subsidies: The subsidies and support measures for the farmers are fragmented and need a uniform and organized policy for better results.
Long retailing process: Unlike automobiles, tractor retailing is a long-term process. Tractors are given to the farmers for a long period to experience before taking a decision to buy it. Mostly it takes at least a month or more to close a deal, says Seema Gupta, a leading dealer and one of the panel members at the event.
Farm mechanization, custom hiring and precision farming, improving productivity, and exports are some of the opportunities available to the tractor industry.
Farm mechanization to reduce workforce:: In 1990 about 60% of the population was employed in farming and agriculture in 1990. It has now come down to about 40% and by 2030 it will be 25%. Thus, the need for mechanization will increase. India currently has one of the lowest rates of mechanization of about 40% compared to almost 90% to 100% in the developed countries or about 70% in China.
Custom hiring of tractor and precision farming: A new pay-per-hour kind of custom hiring is an emerging trend in the tractor industry that will fuel the growth of tractors. This will encourage uberisation of the tractor industry and help farmers too.
Demand for better productivity: India has 189 million hectares of cultivable land but only 159 million hectares are arable. There has been no big change. Hence there is an obvious need for increasing productivity that is possible only with mechanized farming.
Exports opportunities with Trem IV: By October 2021, India is set to adopt Trem IV in tractors which means it opens up opportunities to the manufacturers for exports.
Global mega trends
According to the inaugural keynote speaker Jay Iyenger, chief technology officer at the world’s leading tractor and automotive company CNH Industry, like the automobile counterpart, the tractor industry is also catching up with connected, autonomous, and electrified.
“We have already seen connectivity, electrification, and hybridization picking up in the tractor industry.” She agrees that India holds a very important position in CNH Industrial global business strategy. “India has great skills in digital technology and to leverage that we are strengthening our R&d in India,” Jay Iyenger added.