Tractor sales poised to grow up to 12% in FY21 amid strong agricultural produce, adequate monsoon: Report

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Tractor sales volumes during FY22 would also grow at a high single to low double-digit rate on account of four consecutive good crop harvests

With agriculture production is expected to register high growth in the country in the wake of sufficient rainfall during this monsoon, tractor sales volumes may also grow by 10-12 percent yoy in FY21, primarily driven by a strong rural income., said a report

High rural income would be backed by a solid rabi crop harvest and a likely good harvest of kharif, coupled with higher kharif acreage, said an India Ratings and Research (Ind-Ra) report.

“Moreover, the government’s initiatives in the form of a surge in minimum support price (MSP) for kharif crop and increased budgetary allocation under MGNRES are supporting rural income. During April to September 2020, tractor sales volumes grew 10 percent yoy,” said the report.

Sales volumes during FY22 would also grow at a high single to low double-digit rate on account of four consecutive good crop harvests, translating into higher cash flows for farmers.

Agricultural activities, being under essential commodities, were least impacted by the nationwide lockdown. Also, until date, the spread of COVID-19 has been limited in rural areas, thus not impacting the labour force and the overall production levels. Three consecutive good crop harvests (Rabi 2019, Kharif 2019, Rabi 2020) and a likely strong harvest of Kharif 2020 will spur demand for tractors over the remaining FY21-FY22.

“The agriculture sector will grow better than the overall economy for the second consecutive year in FY21. It expects agriculture to grow at 3.5 percent yoy in FY21 (FY20: 4 percent) as compared to the overall growth (gross value added; GVA) of negative 12.2 percent (positive 3.9 percent),” said the road.

As around 80 percent of the tractors sold are used in the agriculture sector, tractor sales usually move in tandem with agricultural GVA. In FY20, there was a gap in these metrics where agricultural GVA grew, but tractor sales fell. With the two consecutive years of better agricultural GVA growth, tractor sales are likely to benefit over FY21-FY22.

 During 1 June to 30 September 2020, the country recorded above normal rainfall of 109 percent of its long period average (LPA). This is higher than the Indian Meteorological Department (IMD) prediction of 102 percent for 2020.

The tractor industry would be transitioning to new Tractor Emission Stage IV norms in a phased manner, unlike auto industry which adopted new regulatory norms completely on a specific date. Tractors over 50 Horse Power (HP) were proposed to switch to new emission norms from October 2020. However, the government has deferred this timeline by an year.

This would provide a breather to original equipment manufacturers (OEMs) which were grappling with the supply chain issues until now as well as to consumers for whom the pricing would have gone up significantly.

With the lifting up of lockdown restrictions and a simultaneous spur in demand, most OEMs are operating at more than 90 percent of their production capacity and are increasing shifts and further optimising supply chain to improve output. Even the supply chain issues which had impacted certain OEMs during July-August 2020 seem to have subsided.

Over the past few years, higher HP tractors are increasingly being used in the non-agricultural segment particularly construction and infrastructure. As per industry reports, about 20 percent of the tractors are used for non-agricultural use. Due to a prolonged halt in road and other construction activities, demand was adversely impacted, though is gradually picking-up. Hence, Ind-Ra expects the demand from non-agricultural sector to remain muted in FY21, said the rating agency in its report.  

Image credit: The New Indian Express

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