Demand for tractors seen rising this year

Demand for tractors seen rising this year

ICRA points out that the tractor industry reported a strong volume growth of around 28.3 per cent during 2009-10 due to strong rural liquidity on the one hand and on the other, increasing farm mechanisation and also due to increasing use of tractors for non-agricultural uses. 

Given the good rabi crop this time around, ICRA maintains, aided by the continuing firmness in the prices of agricultural products, and the healthy monsoons anticipated during the coming kharif season, sales of tractors will remain healthy this fiscal. Moreover, improving farm mechanisation levels increasing non-agricultural use of tractors, higher credit disbursements for agriculture, and governmental focus on the farm sector are also expected to encourage tractor sales, it stated.  The key factor enabling the demand growth of 2009-10 was strong rural liquidity, which in turn was sustained by several factors like higher minimum support price (MSP) for crops; greater ability of farmers to make cash purchases (including the usage of Kisan Credit Cards); an improved credit environment; and continuance of replacement demand. 

These factors apart, non-agricultural use of tractors (for haulage in construction and infrastructure projects) continued to increase, benefiting tractor demand.  
Also, with infrastructure projects and rural employment schemes increasing alternative employment opportunities, availability of labour for agricultural activities continued to decline, persuading even farmers with medium-sized land holdings to either rent or purchase tractors.  ICRA expects the long-term growth rate for the Indian tractor industry to trend around the historical average of 6per cent-8 per cent, supported by increasing tractor penetration.

However, the industry’s profitability is expected to remain moderate in the medium term, considering the high competitive intensity and low capacity utilisation levels, although larger players could benefit from scale economics. As for margins, it improved in 2009-10, but they would remain vulnerable to adverse changes in commodity prices, it added.
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