After registering modest growth (around 2.8% ) during the first quarter of the current fiscal, growth in the Indian tractor industry slopped into negative territory during the second quarter, dropping by almost 11% on a year-on-year basis, says an ICRA report.
The report highlighted that deficient and delayed monsoons have had a significant impact on industry volume growth. The tractor industry had clocked a moderate growth rate of 11.5% during 2011-12, selling 600,000 units.
"Further, industry demand continues to be held back by firm interest rates, extended bout of high inflation affecting investment sentiment of farmers and hike in tractor prices by domestic OEMs. Demand from the non-agricultural segment has also remained sluggish with no significant pick-up in construction and infrastructure related activity", the report titled 'Indian Tractor Industry: Weak monsoons dampen demand in a struggling market' said.
ICRA expects tractor sales to be tepid during the third quarter of the current financial year, in light of weak Kharif output and concerns over delayed sowing of Rabi crop. Year-on-year growth rates are however, expected to see some improvement during the fourth quarter supported by the weak base of Q4 2011-12, and likely reversal of interest rate cycle.
"Overall, we expect tractor sales volumes to witness flat volumes (0-2% decline) for full year FY13; while maintaining a volume CAGR of 8-9% over the next five years", the report projected.
ICRA, however, feels that while the industry is beset with near term challenges, the long term prospects continue to derive strength from factors such as support from the government of India towards rural development and agri-mechanisation, scarcity of farm labour especially during the sowing season, increase in credit flow to agriculture, moderate penetration, shortening replacement cycle; besides healthy exports.