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Erratic rain, unpaid subsidies drag down tractor sales in Q1 – ET Auto

New Delhi: Rural distress continues. After passenger vehicles and two-wheeler, tractor sales have also lost the force with which the consumption was growing till December last year.

After forging ahead with boost by government subsidies and good monsoon for almost three years, Indian tractor market crashed by 14.14 per cent to 191,305 units in the first quarter of financial year 2019-2020, as per the data revealed by Tractors Manufacturers Association (TMA).

The industry witnessed a healthy 20 per cent growth during Q1 of FY 2018-2019. A sharp 13.6 per cent year-on-year sales drop to 75,859 units in June 2019 marked fifth consecutive month of decline in tractor sales.

The prime factors hitting the hinterland are unfavorable monsoon and uncertainty in government subsidies. So far, this year, the India Meteorological Department (IMD) reported a 17 per cent deficiency in rainfall with June alone recording 33 per cent shortfall in rain.

This came on the back of weak pre-monsoon rainfall that aggravated the water woes in the pockets of Central and South India which are already suffering drought. Rural economy came under pressure, as farm output skid substantially and lack of income sidelined the need for new farm equipment.

Market leader Mahindra & Mahindra (M&M), which owns over 40 per cent of overall tractor market share, reported a 15 per cent decline at 82,913 units in the last quarter. Tafe Group and Sonalika both reported the steepest decline of 17.4 percent at 34,983 units and 20,954 units respectively during the quarter under review.

The situation worsened when the market bubble created by subsidies from the state governments, started leaking. Most of the states which promised to go ahead with the subsidy program are reeling under acute financial crunch, and therefore failed to make the repayments to the dealers, highlighted TR Kesavan, President, TMA.

“Government subsidy is actually blocking the future in many regions. Most of the dealers are sitting with six months to one year of outstanding which has to come from the government and this literally crashed the market particularly in the states of Tamil Nadu, Andhra Pradesh, Telangana, and Assam,” Kesavan told ETAuto.

He also mentioned that last year close to 90,000 – 100,000 tractors came under subsidy programs. “I don’t think everything was sold as farmer income began drying off late,” he added.

Additionally, customers are facing a hard hit from the banks front as well. Even at the time of sluggish sales, no respite is coming from banks as they fail to slacken the high interest rates, said Rahul Lunawat, one of the dealers of Mahindra Swaraj Tractors in Nasik district, Maharashtra.

Post IL&FS fall out, non-banking financial companies (NBFCs), which used to financing tractor loans at a lower rates, have also turned very cautious in lending and reduced their disbursal that further dented the business.

“Banks continue to fetch 14-14.5 per cent interest rates from the farmers on tractor loans while in case of two-wheeler and cars it is close to 9 per cent. This coupled with deficit rains and irregular subsidy announcements have severely impacted our business because everybody is waiting for subsidy and making no purchase. At this junction, the situation is so grave that we are not even capable of paying our monthly expenses,” Lunawat said.

As there is a reluctance to buy, companies like M&M and Escorts announced cutting productions as part of inventory correction measure. Despite such efforts, tractor dealers across the country are reporting inventory levels of upto 45 days. Industry believes that for tractors a normal healthy inventory is of 30 days.

“We still have hopes on August and believe that tractor industry will bounce back in Q2 provided the monsoon should spread evenly across all the agro-climatic zones,” Kesavan added.

Manufacturers Q1 FY’20 Q1 FY’19 % Change
M&M Group 82,913 97,360 -14.84
TAFE Group 34,983 43,351 -17.4
Sonalika 20,954 25,371 -17.4
Escorts 20,122 23,939 -15.9
John Deere 16,543 18379 -9.99
New Holland 7,360 8268 -10.98
Kubota 2,810 2,118 32.67
Others 5,620 4,431 26.8
Total 191,305 223, 217 -14.3

Source: Tractor Junction

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