Are rising tractor sales a sign of reviving demand in rural India?

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New Delhi: Domestic tractor sales rose to a record in the first half of the fiscal year, but economists are hesitating to interpret it as a sign that the farm economy has finally turned the corner.

Tractor manufacturers sold 363,071 of farm machines between April and September, a 21% increase year-on-year, data from the Tractor Manufacturers Association shows. The number of tractors sold is the highest on record for a six-month period.

All major manufacturers have seen robust sales growth.

Mahindra and Mahindra Ltd, the largest tractor maker in the country, last week said the domestic tractor industry grew 37% in the July-September quarter from a year earlier, helped by a normal monsoon that boosted rural sentiment and demand for the farm machines. The company added that the increase in minimum support prices for both kharif and rabi crops are likely to keep rural sentiment positive.

Sonalika International Tractors Ltd registered its highest ever sales of more than 50,000 tractors in the first six months of 2017-18, with domestic sales rising by 51% in September from a year ago. Sales by Escorts Ltd grew 19% during the first half of 2017-18; its second-quarter sales rose by 32%.

But do rising sales of tractors signal a revival in rural incomes and demand following the consecutive years of drought in 2014 and 2015 and the impact of demonetisation last year?

“I am hesitant to say this is a sign of rural prosperity. After two years of negative growth, sales are picking up as rural wages are rising and non-availability of farm labour is triggering demand,” said Ashok Gulati, agriculture chair professor at the Delhi-based Indian Council for Research on International Economic Relations.

Numbers from the Tractor Manufacturers Association corroborate this. Tractor sales reached a high of 634,151 units in 2013-14 but declined 13% and 10.5%, respectively, in the next two years because of widespread drought. In 2016-17, despite a normal monsoon, domestic sales were 582,844 units, an increase of 18% year-on-year, but still lower than the total sales recorded three years before, likely due to the cash crunch following the demonetisation of high-value banknotes in November last year.

“This year, the we are expecting that overall sales will cross 650,000 units,” said Raman Mittal, executive director at Sonalika International Tractors. “India has 670,000 villages but industry-wide sales have never crossed the number of one sale per village in a year.”

“The industry was in a downturn due to consecutive monsoon failures… sales picked up in the second half of last year (2016-17) but then demonetisation hit us. In June and July this year, there was a slowdown due to (the introduction of) goods and services tax (GST) but we are finally seeing a revival in sales,” Mittal said.

Farm loan waivers in states such as Punjab, Uttar Pradesh and Maharashtra and lower interest rates have helped boost sales, said Himanshu, an associate professor at Jawaharlal Nehru University, Delhi, and a Mint columnist.

“As most tractors are purchased through formal loans, a waiver has helped farmers who had turned defaulters to become eligible,” Himanshu said. “This is not a leap in sales but coming back to where we were in 2013-14.”

Sales have gone up in a year which has seen farmers’ protests in several states, with demands for remunerative crop prices and loan waivers.

Following last month’s kharif harvest, wholesale prices of oilseeds and pulses plunged below state-set minimum support prices (MSPs).

Farmers are likely to lose close to Rs36,000 crore due to falling prices in just seven crops, the All India Kisan Sangharsh Coordination Committee, a coalition of over 180 farmer unions, said last week after comparing average wholesale prices and MSPs.

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