The Indian tractor industry is at crossroads. Till 2013-14, it witnessed considerable growth. However, several socio-economic factors started putting pressure on the sector. Since, last two years it faced challenges on every front.
The tractor industry in India had registered a decent growth in last decade, from 189,516 tractors sold in 2003-04 to 634,151 tractors in 2013-14. There have been many factors behind this sharp growth of tractor sales in India. One of them was government’s rising focus on rural India.
Mahatma Gandhi National Rural Employment Gurantee Act (MGNREGA) accompanied with Pradhan Mantri Gram Sadak Yojana (PMGSY) among other rural infrastructure projects and government’s social sector expenditure significantly increased rural employment generation and income during this period. Further, as per NSSO figures, it also resulted into 1.3 crore farm labourers moving out from agriculture sector during 2001 to 2011 despite increase of rural population from 74.3 crore to 83.3 crore. A movement of farm labourers like this had never happened earlier in the history of India.
The increasing rural income due to non-farm job creation and shortage of agricultural labourers resulted into increasing rural wages. It shot up sales of farm machinery, primarily tractors during the decade. After a promising growth till 2013-14, the sector started registering a sharp decline and the sales of tractors fell to 551,463 in 2014-15.
Fall of the Wheel
India’s largest tractor manufacturer Mahindra & Mahindra, which holds 40 percent market share in the country, started facing a slowdown after 2013-14. On its peak, the company sold 2,59,907 tractors in the year which fell to 2,22,334 units in 2014-15. In the ongoing financial year, it is the same story. The company sold 62,358 tractors in Q1 and in Q2 and Q3, the sales stood at 45,246 and 59,785 units, respectively.
Similarly, the second largest tractor manufacturer with 24 percent market share, TAFE (Tractors and Farm Equipment), which makes tractors by the brand name of Massey Ferguson and Eicher, also registered a decline from 1,57,052 tractors in 2013-14 to 1,34,571 units in 2014-15.
The decline in sales of country’s third largest tractor manufacturer, Escorts, slipped the company to the fourth position. The company sold 68,060 tractors in 2013-14 which declined to 57,565 units in 2014-15. The things have not improved in the current fiscal year too. In October 2015, the company’s tractor sales dipped by 30.6 percent. It sold 5,832 tractors in India as against of 8,403 units in October 2014.
After repeated communications, comments from all the three big tractor manufacturers could not come at the time of penning down the story.
However, the sales of International Tractors, which makes tractors by the brand name Sonalika, saw a slight growth. Its sales hiked from 65,541 units in 2013-14 to 66,260 units in 2014-15 which took the company from fourth to the third position in terms of Indian market share.
The sales of all other companies are declining. From 2013-14 to 2014-15, John Deere saw a decline from 37,478 units to 29,365; New Holland from 32,222 units to 28,054 units; VST Tillers from 7,266 tractors to 6,553 tractors; SAME DEUTZ-FAHR from 1,923 units to 1,522 units and HMT from 1,483 tractors to 1,127 tractors. On the other hand, tractors sales of Force Motors increased from 3,219 units to 4,112 units.
Affected by frequent poor monsoon resulting into crop failures, inefficient farm credit and crop insurance mechanism, global slowdown, decrease in public sector investment in manufacturing and agriculture sector, drop in crop price realisation in the global market hurt the farmers’ sentiments and consumption power.
“In last couple of years, monsoon has never been good, resulted into low output in agriculture. It has reduced farmers’ income. These all things have hit the tractor industry. The situation could have been arrested by a better farm credit system and crop insurance mechanism which is still in the nascent stage in India,” says noted economist and former Vice Chancellor of Jawaharlal Nehru University, Prof. Yoginder K Alagh.
“In the last couple of years, the manufacturing growth has not been good and tractors are part of it. There has been a lack of public investment in the sector, thereby declining the growth. As a result of this slowdown, farmers get lower prices which affect their income. So how will they invest in tractors? The entire economy is co-related with each other,” adds Alagh.
In the 12th five year plan, a dedicated strategy for farm mechanisation, Sub Mission on Agricultural Mechanization (SMAM) was formulated. SMAM had an objective of making farm mechanisation easily accessible to the farmers by subsidies and custom hiring centres so that the benefits of high tech machineries can reach the farmers.
“But, today, this planning process (Planning Commission) is dissolved and NITI Aayog doesn’t get into such things. It just functions as a policy advisory. No one is thinking that farm mechanisation is so much important for agricultural growth. In the Deccan plateau, the soil is tough which needs heavy equipments for ploughing. If there is a shortage of pulses, we are importing them instead of using our own agricultural landscape better which would come through mechanisation,” says the economist.
In the Kharif season 2015-16 too, the country faced a deficient monsoon. Out of 640 districts, almost half of them, 302 districts have already been declared drought hit by the respective State governments. It resulted into crop failures in many parts of the country. It is affecting the Rabi sowing too which is lagging behind. By January 22, 2016, area sown under Rabi crops stands at 589.96 lakh hectares as compared to 607.90 lakh hectares in last year this time.
Due to this distress in the agriculture sector, the experts who have deep eye on the tractor industry, expect the slowdown will continue. They don’t see any better outlook in coming future. The industry’s expectations are dependent on the next monsoon. If the country gets a normal monsoon in 2016, the tractor and farm machinery industry can see promising future after harvesting the Kharif crops later this year.
However, the industry body, Tractor Manufacturing Association (TMA) seems optimistic. According to TMA, the shortage of farm labourers and increased usage in non-agricultural activities such as haulage in construction and infrastructure projects will increase demand of tractors in the coming months.
Prof. Alagh wants the government to promote high profiting and cash crops such as fruits and vegetables including allied activities like animal husbandry, dairy, poultry, among others which could fetch good benefits to the farmers. Then, they will be able to spend on machines. “Rice and wheat don’t fetch good profits to the farmers,” the economist adds.
Though the Government has taken a number of steps to address factors critical to agricultural production—soil, water and newly announced crop insurance scheme, but their effect is yet to be witnessed on the ground. Over the years, Minimum Support Prices (MSP) have not kept pace with the rising input costs. Adequate provisioning towards a comprehensive and universal crop insurance scheme, extending crop insurance to all farmers for all crops and considering lower units as a unit of insurance with 100 percent insurance premium needs to be borne by the government.
According to a farm machinery expert, provisioning of higher credit and other input subsidies to small and marginal farmers, tenant farmers and farmers with oral lease, increased budgetary allocation for National Mission for Sustainable Agriculture under Krishi Unnati Yojana and for strengthening the institutional mechanism for better utilisation of available funds under Rashtriya Krishi Vikas Yojana need to be given focus.
Currently, 142 million hectares of land is used for cultivation, of which only 45 per cent farm land has irrigation facilities. With the launch of the Pradhan Mantri Krishi Sinchai Yojana (PMKSY), the convergence of investments in irrigation at the field level, expansion of cultivable area under assured irrigation, improvement of on-farm water use efficiency to reduce wastage of water, adoption of precision-irrigation and other water-saving technologies can be expected. This would help reduce the dependency of the farmers on the erratic monsoons. The tractor industry would see achchhe din (good days) only if the farm sector sees achchhe din and witness good growth rate.
The tractor industry constitutes a big part of the manufacturing sector. If it faces slowdown, it affects the overall manufacturing sector and also reflects the distress in the agriculture sector. The policymakers need to come up with immediate remedy for getting back the old shining days to the industry which it had registered in the last decade.