The year 2020 proved to be one of unimaginable challenges the world had to endure. Every country and industry came to standstill due to the Covid-19 pandemic. But India had one bright spot that moved the wheels of the economy — the rural sector. It not only spurred some demand, but also aided the dramatic recovery of the tractor industry.
“Surely, rural India has shown the way in the post-lockdown period. The rural economy has bounced back much faster than the urban economy and provided the much-needed respite,” says Hemant Sikka, President, Farm Equipment Sector, Mahindra & Mahindra said.
Tractor sales are dependent on the rural markets and cash flow in the hands of farmers. A strong rural economy on the back of a plentiful monsoon, adequate water in reservoirs, good harvest and higher government support aided the boom in tractor sales month-on-month.
“Tractors have particularly done well, thus showing that Bharat kept India moving,” says Vinkesh Gulati, President, Federation of Automobile Dealers Associations (FADA).
If the industry achieves volumes of about 60,000 units in India this month, total domestic sales alone will cross the eight- lakh mark for the first time in its history. Of course, combined sales of domestic and export segments have already crossed eight lakh units during the 11-month period.
Uptick in sales
For the January-November 2020 period, total domestic tractor sales stood at about 7.42 lakh units when compared with 6.85 lakh units in the same period in 2019, posting an increase of about 8 per cent. October 2020 saw the industry achieve its highest-ever monthly sales at 115,155 units.
Total production during the 11-month period of 2020 was higher at 7.54 lakh units when compared with 7.26 lakh units, according to the data of Tractor & Mechanization Association.
“Domestic tractor sales are expected to have risen by about 10 per cent in CY20. The phenomenal growth seen in this calendar year is due to multiple factors,” says Hetal Gandhi, Director, Crisil Research.
“In addition to higher procurements by the Central and State governments and normal monsoon, the Covid-19 outbreak led to farmers investing heavily on agricultural activities amid the absence of other investment opportunities and lesser social events owing to the pandemic. Reverse migration of labour increased the need for farm mechanisation in States like Punjab and Haryana. The rise in total profit was by about 8 per cent for the rabi crop and 7-9 per cent for the kharif crop harvested this calendar year,” she added.
Sensing the favourable growth prospects, tractor-makers came out with new products and initiatives.
Sonalika Tractors just launched what it calls a ‘field-ready’ tractor — ‘Tiger Electric’ — on Farmers’ Day this year. It promises one-fourth of the running cost when compared with diesel-powered tractors. Tiger Electric can be fully charged with a regular home charging point in 10 hours.
“Our electrically powered tractor is fully geared up with the world’s leading technologies that are available in developed countries, and has been customised as per Indian farmer’s requirements and soil conditions for cost optimised farming. This year we also introduced many new tractors to meet the farmer’s demand such as Sikander DLX, Mahabali and Chhatrapati — these have been equipped with advanced technologies and will ultimately lead to increased productivity and income levels at the farmer’s end,” says Raman Mittal, Executive Director, Sonalika Group.
Cascading impact
The sustained positive momentum in tractor sales during the year provided a much-needed respite to component-makers and lenders at a time other their business segments were reporting slow recovery.
“Auto-component manufacturers supplying to tractor OEMs were less impacted during CY20 owing to robust demand. Few OEMs had faced supply chain issues in the initial months post the lockdown and during period of high festive led demand. Also, OEMs had made advanced payments to vendors during periods of supply constraints thereby lowering working capital requirement of the vendors to some extent during that period,” said Gandhi.
Also, higher disbursement via tractor loans this calendar year, in contrast to other automobile segments, has aided automobile financiers this fiscal. NBFCs like Cholamandalam Investment and Finance also indicated that the repayments from tractor borrowers were also good.
Meanwhile, buying of tractors has also become more attractive in the recent months due to its use in many other applications.
Tractors are also used to haul bricks, sand, and farm produce. During poor crop years and in months of lower agricultural activity, renting out tractors for commercial purposes provides farmers an alternate source of income. Furthermore, there are some tractors which are designed specifically for haulage operations and other commercial activities.
The proportion of tractors used for commercial purposes is around 20-25 per cent. Over the years, this has been on the rise. However, due to sand mining ban, muted construction activities amid pandemic and higher farm-led demand, share of commercial usage has come down this fiscal. “Going ahead, we believe, rise in rural construction via higher government spending would aid commercial demand of tractors,” says Gandhi.
Overall, tractor sales growth outlook remains positive due to favourable factors even as other vehicle segments move ahead with cautious optimism.