India’s Tractor Industry Riding on High-Hope

🔍Insights

Nitin Konde, Apoorva Bajj

Feb 29, 2024 — 4 min read

India’s Tractor Industry Riding on High-Hope

Since its start, India's tractor sector has made great strides. In 2023, the India Tractor Market was valued at USD 1,935.72 million, according to a report by BlueWave Consulting, a market research firm. The report further states that from 2024 to 2030, the India Tractor Market is projected to grow at a CAGR of 5.55 percent, reaching a value of $2,676.82 million by 2030. The government's encouraging policies, businesses' plethora of purchase-easing schemes, banks' provision of low-interest loans, and other factors have all contributed to this sector's remarkable boom.

In terms of 2023, the tractor market showed signs of non-uniformity; although the market expanded during the first half of the year, demand weakened during the second half. Declining demand was felt in strategic markets such as Maharashtra, especially in the sugarcane-growing region that impacted portions of Karnataka as well. Nevertheless, agronomic specialists are optimistic about the performance of 2024. The year might not reach its highest point on the graph, but it also won't go downhill. Beginning in the second half of 2024, we expect growth to pick up again. To a large extent, the expansion of the economy is due to the agricultural sector. One of the many programs launched by the Indian government was an effort to quadruple farmers' income. As a result, farmers will be able to raise their level of living and be more invested in their businesses. The agricultural sector is projected to provide a 600 billion rupee contribution to India's GDP by the year 2030.

Ups and Downs
Sectorial Obstacles

Ups and Downs

According to various media reports, domestic tractor retail sales fell 10% year-on-year from 60,321 units in September 2022 to 54,492 units in September 2023. A total of 444,340 units were sold in the first half of the current fiscal year, a 14% year-on-year increase from 389,850 units sold in the same time last year (April–September). Tractor sales, even with the current downturn, have helped the Indian car sector expand overall.

In addition to indicating robust demand, this result has the added benefit of boosting domestic tractor market sentiment, which is particularly important over the holiday season. When compared to the first half of the current fiscal year, sales in export markets have been declining. Companies like Mahindra & Mahindra and Escorts Kubota have seen a 35% year-on-year decline in sales.

From April to September of 2023, International Tractors Limited of Hoshiarpur emerged as the leading exporter, exporting 17,004 units. The company's export target is 1 lakh units by 2030, with a doubling of that ambition in the next years. By the same year, it hopes to have surpassed all competitors and become the leading tractor company in twenty-five countries.

Size of the Indian Market for Tractors in 2021, With a Forecast Through 2027

Sectorial Obstacles

There are a lot of dispersed landholdings in India, which is a major problem for the tractor sector. Minority and small-scale farmers, who make up a large chunk of the farming population, typically have very little land under their control. Since the landholding might not be large enough to warrant purchasing a tractor, this creates obstacles to the implementation of mechanization. More inexpensive and accessible tractors for smaller landholdings should be a goal of manufacturers and legislators.

Another prominent challenge is the lack of mechanization in the Indian agriculture sector. With barely 40% mechanization, the Indian agriculture sector is ripe with opportunity. The tractor business views mechanization in agriculture both as a threat and an opportunity. Through its many programs and efforts, the Indian government has been strongly bolstering the agricultural sector, and more specifically, the farm equipment and farm mechanization subsector. In particular, we applaud the state's sustained support of farmers and agribusinesses through subsidies and other financial incentives. In addition to encouraging farmers to purchase smart machinery, this would boost mechanization and sector-wide productivity by creating an ideal setting for such investments.

Many farmers, particularly those with low financial resources, continue to face the substantial challenge of the high cost of tractors. The high acquisition costs of tractors make them an expensive and capital-intensive venture. High-interest rates and a lack of access to official credit institutions are additional obstacles to tractor ownership. To address this difficulty, it is recommended that financial institutions offer customized financing choices, that government subsidies be promoted, and that more people are made aware of the available programs.

Despite its critical role in modernizing Indian agriculture, the tractor sector has several obstacles that must be overcome. Stakeholders can overcome these obstacles by collaborating on issues like landholding fragmentation, affordability, technological adoption, infrastructure, declining groundwater levels, and environmental concerns. A more efficient, sustainable, and inclusive tractor industry in India will help farmers and the entire agricultural ecosystem. This may be achieved by supportive legislation, new financing structures, technology improvements, and awareness campaigns.