The domestic volume of tractor sales may remain weak during FY16 as the rating agency's outlook sees a decline in tractor volumes (domestic+exports) by about 7-8 per cent in FY16.
Besides, any recovery in volumes is only likely to happen over the medium term, ICRA said.
"Late precipitation, coupled with contingency plans prepared for a majority of districts, may help curtail the impact of a deficient rainfall, the short-term demand drivers for the domestic tractor industry remain weak," it added.
The government remains committed towards rural development and agri-mechanisation.
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While penetration in various parts of the country continues to remain low, the replacement cycle has been shortening.
This, coupled with other factors such as increasing rural wages, scarcity of farm labour as well as long-term trend of improvement in MSPs is also likely to aid growth in industry volumes over the long-term, the rating agency added.
Farm sentiments, which were weakened post the unfavourable kharif harvest in 2014 and significant crop damage caused by bouts of heavy and unseasonal rainfall over parts of the country in February-March 2015, continue to remain weak following the weak rabi harvest in Q1 FY16 and uncertainty regarding the ultimate turnout of the kharif harvest amid the weak performance of the south-west monsoon.
After declining by 13 per cent during FY15 owing to a host of unfavorable factors, the domestic tractor industry volumes have continued to be under pressure, declining for an eleventh consecutive month in August 2015 (21 per cent y-o-y decline), resulting in a decline of 16.4 per cent y-o-y in April-August, FY16.
The farm sentiments have been further weakened due to numerous adverse short-term demand drivers, which include stressed farm cash flows on account of lower rabi harvest in Q1 FY16, a second consecutive year of weak south-west monsoon as well as only a modest increase in MSPs of various crops.