India's Agriculture witnessing impressive advancements in tractor technology

While truck perceived as a barometer of economic activity, tumbled down to a decade low in the fiscal year - 2021 at 5.75 lakh units, the tractor sales meanwhile registered 26 percent to a record high at 8.99 lakh units.
According to an ETIG analysis, tractor sales have generated around Rs 48500 crore on March 31, 2021, in terms of revenue, and revenue from commercial vehicles that are priced higher is estimated at Rs 47500 crore. When the tractor sales were ahead of trucks by 1400 units in fiscal as well, the truck sales had generated double the revenue.

In the Fiscal Year 2020, the gap between tractor and commercial and vehicle sales was about 8000 units, with the tractor sales at 7.09 lakh units and commercial vehicles at 7.17 lakh units and in terms of revenue, the difference was Rs 21000 crore, with Commercial Vehicles generating Rs 60000 crore.

Hemant Sikka, President of the Farm Equipment Sector at Mahindra & Mahindra and president of the Tractor Manufacturers Association, said the Agri sector was the most resilient in FY21 in the face of adversities.

“Classified as an essential activity, the Agri industry was allowed to operate and serve the farmers, even while the rest of the country was still under lockdown,” Sikka said. This drove “unprecedented growth” in the segment, with the supply chain, manufacturing, and sales network recovering very fast, he added.

The record volume was also sustained by two consecutive years of above-normal monsoon rains, which happened for the first time since 1960. Furthermore, while major crops saw higher yields, the realization on-farm produce was high at 12 percent and this resulted in higher disposable income and improved cash flows which led to a bumper year for tractor industry growth.

If not for a shortage of parts, the volumes could have been even higher in the tractor sector. However, on the contrary, the industrial sectors had to endure a strict lockdown. Commercial vehicle manufacturers also faced numerous challenges owing to a shortage of parts and the workforce when the market reopened.

What catapulted the operating margins of the listed tractor players to a record high was the higher sweating of installed capacity and lower expenses during the pandemic. The market leader in the Indian tractor segment posted an operating margin of 24.4 percent in the December quarter.

The tractor industry was the only segment of the automotive business which expanded on a compounded annual basis in the last five years. The tractor volume grew 12.7 percent annually in the last five years.

Future trends
The Indian agricultural tractors market is anticipated to register a CAGR of 4.5 percent until 2026. The tractor sales in India dropped only in April 2020 owing to lockdown restrictions. However, the demand for agricultural machinery which also includes tractors surged. This was mainly owing to higher Kharif sowing, good cash flows to farmers, a timely and monsoon in India, in the months of June and July, continued higher rural spending by the government, and exemption from lockdown restrictions. Therefore, no major impact is seen on the Indian agriculture market owing to the global pandemic.

Other factors, such as enhancing rural wages and scarcity of farm labor are expected to increase the tractor volume over the long term along with various Government initiatives about rural development and farm mechanization. As one of the world’s largest tractor markets, in terms of units, India sells 6 lakhs to 7 lakh tractors on average and remains a highly lucrative market in this landscape due to the decreasing availability of farm labor and the surge in innovative business models which includes custom hiring solutions for tractors.

While the Indian Agriculture machinery market is consolidated and dominated by large global and domestic manufacturers, farmers prefer trusted brands for Assurance of quality and after-sales services offered by the big companies. The Global leaders and leading players occupying the highest share in the Indian agricultural tractors market are going for joint ventures intending to not only achieve higher sales but also increase their production capacity. One such instance is where Escorts Limited, entered into a joint venture with Japan's Kubota Corporation, in Dec 2018, intending to create a manufacturing capacity of producing 50000 tractors in India.