Delayed monsoon, weak rural economy, tightened liquidity scenario, and the vicious cycle of droughts and floods have dragged down the demand for tractors, which is already witnessing slowdown since the start of this fiscal. The industry has warned that this trend may continue if no stimulus is given to boost rural demand.
In the first quarter of this financial year, the domestic tractor industry declined 14.6 per cent with sales of 1,91,305 tractors against 2,23,937 units sold during the same quarter last fiscal, with all leading tractor manufacturers posting a double-digit decline in sales.
Mahindra & Mahindra (M&M), which commands over 40 per cent of the market share, reported a 14.84 per cent y-o-y dip in sales, while Sonalika and Escorts posted 17.4 per cent y-o-y and 15.9 per cent y-o-y decline respectively.
While TAFE Group’s volumes fell 17.4 per cent, others such as John Deere and New Holland Agriculture reported a dip of around 10 per cent y-o-y. M&M has been reporting a y-o-y dip in sales since December while Escorts Ltd has been posting a decline in sales from March 2019.
The industry recorded more than 32 per cent of decline in production in June 2019 while sales, including exports, too were down 15 per cent.
“Tractors demand in Q1FY20 remained sluggish and was adversely affected due to a weak sentiment in the agri-economy resulting from delay in south-west monsoon, poor spatial distribution in June and weak agricultural incomes impacted by poor price realisation,” M&M said.
The government, to maintain fiscal prudence, had curtailed the rural expenditure, which is also one of the reasons for slackening demand.
Another factor that contributed to slackening demand was liquidity crisis in the Non Banking Financial Company (NBFC) sector. So far, 70 per cent of the tractor financing is done through NBFC and financial institutions have been cautious on auto sector lending post the liquidity crisis. Both tractor manufacturers and economists say it is worrying sign as with delayed monsoon things may become worse.
According to a report by rating agency ICRA, the third advance estimate of crop production indicates a decline in Rabi crop output, coupled with poor Kharif sowing.
By June end, rainfall recorded was only 33 per cent deficient. By mid of August, there was no deficiency in rainfall. Excess of rainfall led to floods across India, detrimental for crops. According to sources in the agriculture ministry, states like Maharashtra, Gujarat, Uttar Pradesh, Bihar and Karnataka, Kerala have witnessed floods that will damaged standing Kharif crops. The centre is yet to assess its impact.