GOOD rains in many parts of India this year have boosted the fortunes of the tractor manufacturing sector in the country. Tractor sales are expected to expand at double-digit rates in the current year, following huge demand from farmers, especially in agriculture-dominated states.

All the major tractor manufacturers are reporting healthy growth rates and are expanding furiously in a bid to meet the growing demand.

According to a recent report by ICRA, a leading credit rating agency (in which Moody’s Investors Service has a significant shareholding), the tractor industry in India has seen a 12.8 per cent growth rate in the April-August period of the current fiscal.

The industry is expected to witness growth of 10-11pc during the entire fiscal.

“An expectation of improvement in non-farm income, supported by the government’s thrust on rural spending, infrastructure creation and irrigation spending would continue to support the demand for tractors by 10-11pc,” says an ICRA report.

Subrata Ray, the senior vice-president and group head, corporate ratings at the agency, says on a long-term basis, the industry can expect growth of 8-9pc. “The government remains committed towards rural development and agri-mechanisation, a critical component in improving the state of agriculture in the country,” he notes.

Even more optimistic about the prospects for the tractor sector is Crisil Research, an S&P Global company, and one of India’s largest, independent and integrated research houses. Binaifer Jehani, director, Crisil Research expects the tractor sector to grow by 11-13pc and sales adding up to 645,000 units.

All the major tractor manufacturers are reporting healthy growth rates and are expanding furiously in a bid to meet the growing demand

This would break the previous record of 627,000 tractors sold in 2013-14.

Tractor sales in August were at a lifetime high in the country, witnessing a growth of 34.4pc. This was followed by a hefty 50pc growth rate in September, with monthly tractor sales topping the 100,000-mark.

According to Crisil Research, FY2017-18 began with a consistent growth of 10-15pc in tractor sales, mainly on the back of a strong Rabi harvest (8.5pc growth over 2016-17) as favourable monsoon rains filled up the reservoirs, and a quick recovery from demonetisation improved farm sentiments.

“The announcement of farm loan waivers in some key states (Uttar Pradesh, Maharashtra, Punjab, and Karnataka) also helped to push demand for tractors, as agri loan liabilities started reducing,” says the agency.

Ray at ICRA believes that factors including rising rural wages and scarcity of farm labour will boost growth of the tractor industry on a long-term basis.

Of course, a major factor boosting demand for tractors is the focus of the Narendra Modi government on infrastructure development, which is also impacting rural areas in a big way. Besides being used in agriculture, tractors are increasingly being deployed for construction and other related activities.

LEADING tractor manufacturers are having a field day with demand for their products soaring. The segment is dominated by players including Mahindra and Mahindra (M&M), Tractors and Farm Equipment (TAFE), Sonalika International Tractors and Escorts group.

Mahindra, the country’s largest tractor maker (which sold nearly 45,000 units in September), is witnessing remarkable growth in the sector, both in India and abroad.

Part of the nearly $20 billion automotive group, Mahindra Tractors last month acquired Erkunt Traktor Sanayii AS, a Turkish tractor producer and its foundry business for Rs8bn (about $123 million).

Pawan Goenka, managing director, M&M, says that Turkey — the fourth-largest agricultural machinery market — is a strategic market for the group. The acquisition was part of a larger globalisation strategy of the group.

M&M will also be consolidating its presence in other markets including Brazil, Japan and Algeria, besides Turkey.

In financial year 2016-17, Mahindra sold nearly 250,000 tractors in India, a growth of nearly 23pc over the previous fiscal’s sales. It also raised its market share by nearly two per cent to 42.7pc. Mahindra exported about 15,000 tractors, a growth of more than 26pc.

Rajesh Jejurikar, president offarm equipment sector, M&M, says the company sold 44,000 tractors in September, which was a massive 52pc growth over the previous year’s September figure.

Other manufacturers are also reporting excellent prospects in the foreseeable future. Rajan Nanda, chairman, Escorts Ltd, points out that the company is “on a transformational journey of developing products for global markets and offers products of quality with specifications that would be competitive and attractive to buyers.”

He adds that Escorts is spreading its operations globally and will develop products mapped to the requirements of the customers and markets. The company recently launched India’s first electric and hydrostatic concept tractor and an expanded global portfolio of tractors for the export and domestic market in the 22 HP to 90 HP range.

Nikhil Nanda, managing director, Escorts, says the launch of the electric tractor concept displays “our frugal engineering to offer India’s best to the world. Continuing with our massive transformative purpose of contributing to global food requirement we will enable farmers globally to produce more with mechanised farming products and solutions.” Last month, Escorts sold more than 10,000 tractors, registering a growth of 34pc.

Interestingly, Sonalika, the other major tractor producer, reported a nearly 60pc growth in sales in September. Its exports shot up by nearly 120pc.

Raman Mittal, the company’s executive director, says its tractors have “become the preferred choice of progressive farmers across various geographies in India as well as the globe as they are best suited for multi-crop patterns as well as non-agri usages.”

While tractor manufacturers appear bullish about the prospects for the sector, analysts point out that 2017-18 should be seen in the light of the two previous drought years, when demand had slackened sharply.

Published in Dawn, The Business and Finance Weekly, October 23rd, 2017