Easy access to finance fuels tractor sales in South

Farmers in Karnataka, Andhra Pradesh and Tamil Nadu have been instrumental in driving growth in tractor sales this financial year on the heels of convenient access to credit.

The growth rate in tractor sales in these southern states has outstripped national growth rate. Consequently, the share of these states has increased at the expense of traditional high demand areas such as Punjab and Uttar Pradesh where the sales have been lacklustre.

Industry hands said that the latent demand for tractors in the three southern states has been an important growth driver this year. While the latent demand for tractors exists in other states such as Madhya Pradesh, the crucial difference has been access to finance.

Kamal Bali, managing director of Same Deutz-Fahr India, identified access to the finance as the single most important determinant in the sharp growth in sales of tractors in southern states. "Finance is the biggest driver of demand today," he added.

Another industry official said that nationalised banks had played an important role in bringing about easier access to credit. Banks, both nationalised and private sector, had brought credit repayment in sync with farmers' cash flow pattern, he added.

In addition to credit, Bali said that key demand drivers in the south had been low tractor penetration and the monsoon pattern that had led to a 'feel good factor.'

The tractor penetration in states such as Punjab was about 90 tractors per 1,000 hectares, while in the southern states it was less than 20 tractors per 1,000 hectares.

Though penetration was low in other states such as Madhya Pradesh, sales has dropped there this year because of inadequate credit. In the April-August 2005 period, 9,062 tractors were sold in Madhya Pradesh, a fall of 31 per cent in relation to the previous year.

A tractor industry official said that high default rates in pockets of Madhya Pradesh had led to a knee-jerk reaction from the banks and other financiers and a slowdown in the flow of credit.

Madhya Pradesh's predicament has made the tractor industry hope that the same pattern is not repeated in the southern states in the event of a few poor quality borrowers.