New Delhi: Rural India is picking up tractors in record numbers and at the same time, staying away from motorcycles, a vehicle segment that is otherwise hugely popular in rural markets. Largest tractor maker Mahindra & Mahindra has doubled its forecast for annual growth in tractor sales for the current fiscal to 5% to 10%, forecasting it to close the year on record sales of over 925,000 tractors. Will happen.
Hemant Sikka, President, Farm Equipment Sector, M&M, said that four consecutive seasons of normal monsoon, improving farmers’ market prices for key crops and increasing income from the haulage sector are driving unprecedented demand for tractors in rural India.
He said, ‘It has never happened since independence that monsoon has been normal for four consecutive years. India is primarily a rainfed agricultural economy. If the rains are good, it helps sowing, which is a functional benefit, but it also helps sentiment—high-ticket purchases are always made out of sentiment. A person regularly buys toothpaste, soap and daily use items, but if they have to spend lakhs of rupees to buy property – they will do so only when they are feeling confident and monsoon will give them that confidence and good cash Flow,” Sikka said in an interview.
“Second, mandi (farmers’ market) prices for all major crops are about 50% higher than the minimum support price (MSP) and market payment cycles are quick. Last year the highest price was recorded in the wheat market The price of wheat is Rs 2,400 per quintal, while this year’s mandi prices are already over 3,000 per quintal, which is the highest ever,” Sikka said.
“The delayed withdrawal of monsoon is also helping rabi sowing for wheat and pulses, which is higher than the already seen last year. For oilseeds, it is much higher – up to 7%, therefore, a strong rabi sowing is giving a lot of confidence to the farmer.”
Sikka said prices will stabilize from mid-April after the rabi harvest.
It is the same inflation that is hurting two-wheeler buyers as well.
Commodity price or raw material price inflation, a series of regulatory and safety-related additions, and increased cost of mandatory third-party motor vehicle insurance have led to a nearly 40% increase in two-wheeler prices in the last 3-4 years making what would normally be an item with a low ticket price suddenly a very expensive purchase, especially in the case of entry-level motorcycles.
Two-wheeler sales are estimated to be 16.5 million units in this fiscal, down significantly from their previous peak volume of 21.2 million units in FY19.
Tractor prices, too, have seen a 15-20% increase in prices during this period, but the income they generate for customers more than makes up for the additional purchase cost.
“While the cost of tractors has increased over the years due to commodity inflation, the income of farmers with tractors has increased due to inflation in the produce prices in the mandi as well as the freight rates in the market. By about 15% to 20%, Sikka said, hence generating more income for tractor customers.
“From current numbers this year, we expect double-digit growth in tractor sales, however, when we started the year, our guidance was higher in the mid-single digits. “The government is focusing on the rural side, which is also a pre-election year,” said Bharat Madan, chief financial officer at tractor maker Escorts.
Lower government outlay on Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) will be a net positive for the tractor market.
“If the outlay of the MGNREGS scheme is less, agricultural labor will move to urban areas for employment. Labor shortage in farms will lead to more mechanization, so for our industry, this is a good sign that could lead to increased sales of tractors and farm equipment,” said Madan.
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