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Tractors slip in rural economy mire

Subhasis Chatterjee

THE Rs 7,000-crore Indian tractor industry has been growing sluggishly at two per cent per annum for some years now, and the trend is likely to continue this year. Industry sources attribute this to several factors. But the most important is the general slowdown of the rural economy.

In the rural areas, tractors are used not just for farm operations, but also as a means of transport for both men and materials. The crop loss in the central parts of the country due to persistent drought and the steep rise in the excise duty on tractors below 1800cc capacity have also led to a drop in demand for tractors.

Primarily, it is the prices of paddy, jute, potato and wheat that determine the demand for tractors. If the prices are high, the demand for tractors, too, rises. Unfortunately, the crop prices have been low. A bumper wheat crop in Punjab this season not only depressed prices, but also hit procurement. The Government procurement agencies (mainly Food the Corporation of India) are severely handicapped due to the lack of adequate storage facilities.

In West Bengal, for example, paddy is currently selling at Rs 225 per quintal, which is nearly Rs 175 below last year's market price. The wholesale prices of jute and potato are also down. All these have led to a situation where farmers are finding it di fficult to even recover their production costs. Non-disbursement of relief funds in flood-ravaged and drought-hit areas has also affected farmers.

The Centre's decision to double the excise duty from 8 per cent to 16 per cent on 21-30 HP tractors has narrowed the price differential between heavy and light tractors by nearly Rs 12,000 per vehicle. The demand for 25 HP tractors has gone down drastica lly following the withdrawal of the excise duty sop for this segment.

In 1998-99, the total number of 21-30 HP tractors sold in West Bengal and the North-East was 328. This figure dropped to 284 the following year after imposition of 8 per cent concessional excise duty. The manufacturers do not expect this figure to cross the 280-mark in this region for this fiscal.

Of late, the demand for tractors in Orissa is on the rise, thanks to the on-going reconstruction of the cyclone-ravaged areas. There is also a great demand for tractors in the newly-created Jharkhand State, where a lot of development work under is on.

Uttar Pradesh emerged the biggest tractor market, surpassing Haryana and Punjab. The State accounts for almost one-fourth of the total tractor sales in the country. Last year, it recorded sale of 70,000 tractors.

In the North-East, tractors are used by tea gardens for hauling and tea-planting. Tea majors such as Tata Tea and Goodricke usually deploy 40-50 HP tractors in their large tea gardens for better yields.

In the first three quarters of this year (April-December 2000-01), Mahindra and Mahindra consolidated its position as the market leader by selling 62,123 tractors, with a market-share of 35.3 per cent. Punjab Tractors Ltd (PTL), which sold 35,211 tractor s during the same period and notched up a 20-per cent market share, was second, followed by Escorts with 18.3 per cent market-share.

However, during the same period, the industry was hit by an 8-per cent drop in sales volume to 1,76,152. In contrast, almost two lakh tractors were sold during the corresponding period of 1999-2000. This depressed demand condition in the market is exerti ng considerable pressure on the operating margins of most tractor companies. Operating margins of Eicher declined from 9.02 per cent in 1998-99 to 7.77 per cent in 1999-2000 and are likely to decline further in 2000-01.

The operating margins in Escorts also declined from 14 per cent to 11 per cent during the first half of 2000-01. Most manufacturers have their presence in the 31-40 HP tractor segment, which make up almost 56 per cent of the total market. Mahindra has it s 275 DI, 365 DI and 475 DI, while PTL has got S-735 FE and S-733 FE to cater to this segment. Tractors and Farm Equipment Ltd (TAFE) and Escorts have their models (like MF 241 DI, 1035 DI-J and 435 Power Track,440 Power Track) for this segment.

Eicher, HMT and others have a presence in this segment. Most of these models have direct injection engines or cold-start engines (easy to start on cold mornings). Generally, tractors which fall under this segment have water-cooled engines for longer life . But some Eicher models have air-cooled engines. Company sources say that it is in replacing models with air cooled engines with water-cooled ones.

In the 41-50 HP segment, Mahindra's 575 DI and 585 DI are pitted against Escorts's 450 Power Track, Farm Track 60 and PTL's S-744 FE. TAFE's 245 DI-J and HMT's 4511 are some other models belong to this segment. A 50 HP tractor costs between Rs 3.4 lakh a nd Rs 3.5 lakh. Escorts's Farm Track 60, which is a 50 HP farm machine, carries a price tag of Rs 3.45 lakh in West Bengal.

Earlier, Mahindra did not have any model in the 51-60 HP segment. But recently it introduced a 60 HP model called Arjun 605 DI in this segment. JD 5310 from John Deere (it has a tie-up with L&T), S-855 from PTL, and 5911 from HMT are some of the models f rom other manufacturers. Most of these tractors have high pulling power and considerable lifting capacity.

Few tractors are available in the market with more than 60 HP engines. TAFE's MF 375 ET and HMT's 7511 are two such models powered by 75 HP engines. MF 375 ET costs Rs 7 lakh, while 7511 costs close to Rs 5.5 lakh in West Bengal.

Barring a few, most Indian tractor manufacturers source their engine design from AVL Austria, a well-known engine designing farm. Eicher has tied up with Valtra to manufacture tractors, of over 50 HP.Keeping in mind the cyclical nature of the tractor mar ket, most analysts believe that a good monsoon will remove the present slump in the market, turning around the rural economy. But inventories in the system due to low off-take will hurt the bottomlines of many manufacturers.

(The author is a Kolkata-based freelance writer).

Picture: Farmers having a look at the Mahindra 25 HP, 255 DI tractor, when it was launched in Haryana about two years ago... The crop loss in the central parts of the country due to persistent drought and the steep rise in the excise duty on tractors below 1800cc capacity have led to a drop in demand for the vehicles.