What are the challenges and opportunities in the tractor industry, which is anticipated to grow by 5% to 6% in FY22?

India is in the first place, producing almost a million units per year in FY21, accounting for nearly half of the global total. Domestic sales totalled 900,000 units last year, with 100,000 units exported.

In India, the tractor industry provides between USD 4 and 5 billion to the automotive component business.

Tractor demand is mostly seen as a result of the rural economy and farming. Agriculture and farming contribute more than 16% of India's GDP. Outside of agriculture and rural areas, tractors have a wide range of uses and applications.

The rural sector provides 45% of India's overall economy. A maximum of 30% of this comes from small-scale manufacturing and service companies.

According to India Ratings (Ind-Ra), the domestic tractor sector is expected to rise by 7% to 10% YoY in FY22. Experts at the Garret ETAuto Farm Equipment Virtual Summit 2021 analysing the future of tractor demand in India predicted a 5% to 6% increase in FY22. “We estimate the domestic market to grow to roughly 950,000 units this year, with the increase in MSP driving the growth,” says Bharatendu Kapoor, TAFE President-Sales & Marketing.

Obstacles associated with the Tractor Industry:

The lack of a sufficient testing facility, the requirement for tractor modernization, money, Trem IV implementation beginning next month, growing material costs, poor subsidy execution, and a lengthy retailing procedure are among the significant problems.

• Lack of sufficient testing facility: India has only one tractor testing facility, which has an exorbitantly long waiting period of 3-4 years for testing and a year to receive a result. This is a big stumbling block.
• Tractors must be modernised: Tractors on the market today may be adequate for the time being, but they will require significant improvements in the future.
• Finance: With a small number of rivals and a variety of limits, finance remains one of the biggest barriers. Even though the tractor's purchase price has increased by INR 40,000-INR50,000 in the last six months, the financing option has decreased or remained the same. Farmers are placed on the bad list since they have no credit history.
• Starting next month, Trem IV will be implemented: Tractors with more than 50 horsepower, which are subject to the new emission rules, represent for just 7% to 8% of the industry now, so the impact is minimal. Approximately 5% of buyers are expected to opt for automobiles with fewer than 50 horsepower.
• Last year, the cost of production increased by INR 2100 per acre, owing to a rise in diesel costs, as well as increases in the cost of urea and non-urea fertilisers. The fact that the MSP raised by 8% to 10% last year greatly lessened the impact.
• Farmers' subsidies and support measures are dispersed, needing a more consistent and coordinated approach to obtain better results.
• Unlike vehicle sales, tractor retailing is a long-term process. Farmers are lent tractors for an extended length of time in order to get a feel for them before purchasing one. A deal normally takes at least a month to close, if not longer.

Opportunities Prevailing in the Tractor Industry:

The tractor sector has several options, including farm mechanisation, bespoke hiring, precision farming, increasing production, and exporting.

• Farm mechanisation to reduce workforce: Agriculture and farming employed nearly 60% of the population in 1990. It has now reduced to roughly 40%, and by 2030, it will have dropped to 25%. As a result, there will be greater demand for mechanisation. India now has one of the lowest rates of mechanisation in the world, at around 40%, compared to around 90% to 100% in wealthy countries and more than 70% in China.
• Tractor custom hiring and precision farming: In the tractor industry, a new pay-per-hour form of custom employment is emerging, which will fuel tractor growth. This will help farmers while simultaneously promoting the urberization of the tractor industry.
• Only 159 million hectares of India's 189 million hectares of cultivable land are arable. There hasn't been much of a shift in the situation. As a result, there is a pressing need to boost productivity, which can only be accomplished by automated farming.
• Trem IV expands export opportunities: By October 2021, India is expected to have implemented Trem IV in tractors, giving manufacturers more alternatives for export.