The Union budget for 2004-05 has proposed to exempt tractors and in-house components going into tractor making from the 16 per cent excise duty. The tractor industry says it will be able to pass the benefit of lower price to buyers. However, there is a caveat here. The extent of price reduction in tractors will depend on the composition of in-house and outsourced components that go into tractor making.
The outsourced components that carry 12 per cent excise duty are not eligible for modvat credit. Therefore, the net benefit to tractor buyers may not exceed 4 per cent. But even this has come under a cloud of uncertainty because of the truant monsoon so far. The fear of a repeat of 2002 has begun to stalk Krishi Bhawan. So far, the long range period average has slipped from around 121 per cent to 90 per cent and out of 36 meteorological divisions, 19 have slipped into deficient categories. The situation is grim and more so for the farm-driven agricultural machinery segment.
Renewed emphasis on agriculture, prospects of better credit availability and a focus on rural infrastructure would have been the right recipe for tractors to be put on a steady growth path.
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The industry had notched an impressive 45 per cent growth in tractor sales during January-February 2004, thanks to higher rural incomes. Last year’s good rains proved a boon for tractor companies with a 38 per cent rise in sales income to Rs 1,929 crore and a 124 per cent rise in net profit to Rs 141 crore. During the last five years or so, the annual average offtake of tractors has been around 2.5 lakh. The current 2.6 million tractors represent less than half of the poten-tial market. Uttar Pradesh, Madhya Pradesh and Punjab account for a bulk of tractor offtake. The industry thought that an 8-10 per cent growth in tractor sales was possible in 2004-05. However, the fear of an erratic monsoon so far may belie that hope. How far the budget thrust on farm sector will be a built-in-feature of overall economic policy will make a crucial difference to the tractor industry’s prospects in the long run.
Therefore, tractor companies that seek overseas pastures with a focus on cost engineering, suitable changes to product design and technological upgradation may shield themselves from exigencies of domestic cyclical agriculture. Indian tractor companies can leverage on their dominance in medium and small horse power tractors especially in the SAARC and other Asian/African countries.
