Domestic tractor market sales continue to be sluggish with the industry showing no signs of any recovery so far, states agency firm ICRA.
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 Feb-March 2015, continue to remain weak following the weak rabi harvest in Q1FY2016 and uncertainty regarding the ultimate turnout of the kharif harvest amid the weak performance of the south-west monsoon.
Although the sowing for Kharif crop represents a marginal growth over the corresponding period previous year, the First Advance Estimates of kharif crop production released in September 2015 indicate a decline in output of most major kharif crops in 2015-16 as compared to fourth and final advance estimates for 2014-15.
Moreover, the increase in minimum support prices of most crops has only been modest. Additionally, low reservoir storage levels at 61% of the live storage capacity as on Oct 1, 2015 are significantly lower than the storage position of last year (especially the western and southern regions) and could impact the sowing of the Rabi crop. Some last-minute precipitation because of a late withdrawal of monsoon could however help increase soil moisture content to an extent, says agency firm.
"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," it added.
Overall, while factors such as enhanced moisture in the sub-soil on account of late precipitation coupled with contingency plans prepared for a majority of districts etc. may help curtail the impact of a deficient rainfall, the short term demand drivers for the domestic tractor industry remain weak.
ICRA thus expects the tractor domestic volumes to remain weak during FY2016 (outlook of a decline in tractor volumes (domestic + exports) of about 7-8% in FY16) and any recovery in volumes is only likely to happen over the medium term.
On the long term front, ICRA continues to maintain a volume CAGR of 8-9% for the tractor industry over the next five years as long term industry drivers remain intact. The government of India (GOI) remains committed towards rural development and agri-mechanization.