Tractor sales likely to grow by 12% thanks to monsoon and farm loan waivers

Tractor sales likely to grow by 12% thanks to monsoon and farm loan waivers

Posted On - 03 Aug 2017

Two consecutive years of good rains and crop loan waivers in key states will push tractors sales to a record high in 2017-18, Crisil said in a note on Tuesday.

Sales of tractors, seen as a barometer of rural demand, may touch a new peak of 650,000 units in 2017-18, about 12% higher than the 580,000 units sold in 2016-17, the ratings agency said.

Tractor sales rose 18% in 2016-17 (year-on-year), helped by a normal monsoon, underscoring the strong correlation between rains and tractor makers’ fortunes.

The June-to-September south-west monsoon, which irrigates more than half of India’s crop area, has so far seen surplus rains of 2% compared to the normal or 50-year average. According to Crisil, sales of tractors fell by 10% in 2015-16, when rains were sub-par.

“Farm loan waivers in states such as Maharashtra, Punjab, and Uttar Pradesh which account for more than a quarter of the domestic tractor sales—plus the fact that other states could follow suit—will put money in the hands of the farmers,” Crisil’s note said.

It added that declining credit cost and hikes in crop support prices will also support sales of tractors.

“Tractor sales may go up as loan waivers will allow farmers to take fresh loans,” said Himanshu, associate professor of economics at Jawaharlal Nehru University in New Delhi and a Mint columnist.

“The growth in sales is likely to be robust due to a base effect as sales dipped during previous years of drought (in 2014 and 2015). Still, rising tractor sales is not an indicator of reviving rural demand. We are in a state of demand deflation as evinced by the low inflation numbers,” Himanshu added.

According to data analysed by Crisil, sales of tractors grew 30% in 2009-10 when a loan waiver announced by the Centre offset the adverse impact of a failed monsoon.

Doubling of budgetary allocation for long-term irrigation funds, expansion of crop insurance, focus on mechanisation, and increasing use of tractors beyond tilling and haulage will provide a tail wind for domestic tractor manufacturers, Crisil said.

The ratings agency also said that its credit outlook for tractor manufacturers like Mahindra & Mahindra and TAFE (with a combined market share of 65%) is positive, supported by strong demand and healthy balance sheets.

At 60% capacity utilisation at present, tractor makers can easily address the surge in demand without incurring fresh capital expenditure, Crisil said.

Mahindra Bolero Maxitruck Plus

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