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Tractor sales may grow 10-12% in FY21 due to strong rural income: Ind-Ra

Tractor sale volumes are expected to grow 10-12 per cent this fiscal over the previous year primarily driven by a strong rural income owning to solid rabi crop harvest, ratings agency Ind-Ra has said

tractor, farmers

Press Trust of India Mumbai
Tractor sale volumes are expected to grow 10-12 per cent this fiscal over the previous year primarily driven by a strong rural income owning to solid rabi crop harvest, ratings agency Ind-Ra has said.
Moreover, government initiatives in the form of a hike in minimum support price (MSP) for kharif crops and increased budgetary allocation under MGNRES are supporting rural income, it said in a report.
According to Ind-Ra, the segment volumes in 2021-22 are estimated to stand at a high single to low double-digit rate on account of four consecutive good crop harvests, translating into higher cash flows for farmers.
During April-September period of this fiscal, tractor sale volumes grew 10 per cent year-on-year, the report stated, adding three consecutive good crop harvests and a likely strong harvest of kharif 2020 will spur demand for tractors over the remaining FY21-FY22.
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, it said.
Ind-Ra also said it expects the agriculture sector to grow better at 3.5 per cent than the overall economy for the second consecutive year in 2020-21 after a 4 per cent growth in the fiscal compared to the overall growth (gross value added) of (-) 12.2 per cent, it said.
As around 80 per cent of the tractors sold are used in the agriculture sector, tractor sales usually move in tandem with agricultural GVA, it said adding in 2019-20 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, Ind-Ra said.
It also said that in the period between June 1 to September 30, the country recorded above normal rainfall of 109 per cent of its long period average (LPA). This is higher than the Indian Meteorological Department (IMD) prediction of 102 per cent for 2020.
Also, except northwest India, all regions of the country received rainfall higher than the normal.
However, given that the northwest region has a high irrigation coverage, rainfall deficiency is unlikely to impact the agricultural output.
The adequate pre-monsoon rainfall followed by the timely arrival of the monsoon in most part of the country and above-average rainfall have led to an year-on-year increase in the total kharif acreage, the report said.
Moreover, thecentral government has taken several initiatives to improve farm income including amending Essential Commodities Act, deregulation of mandis, allowing inter-state trade and increasing MSP for kharif crops, the report said.
Various state governments have also provided loan waivers to farmers, subsidised loans and moratorium, as well as incentives to the farmers to opt for farm mechanisation to boost rural income.
Furthermore, the tractor industry would be transitioning to new Tractor Emission Stage IV norms in a phased manner, unlike the 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 this year, which was however, deferred 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, Ind-Ra said.
According to the report, while for banks, tractor financing falls under priority sector lending, non-banking finance companies too are willing to lend due to a longer instalment period for the asset class than for most other types of loans and good crop during the current season.
Improved farm income should also help lower delinquency levels, thus improving asset quality.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Oct 30 2020 | 6:04 PM IST

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