Trac­tor, con­sumer firms’ hope rid­ing on agri pack­age

Business Standard - - COMPANIES - SHALLY SETH MOHILE, SANJEEB MUKHER­JEE & ARNAB DUTTA

Even as a sig­nif­i­cant part of ru­ral In­dia is go­ing through fi­nan­cial dis­tress after the col­lapse in food prices and rain­fall deficit, de­mand for con­sumer goods and trac­tors is ex­pected to re­main ro­bust.

Trac­tor sales in In­dia grew at a brisk pace for the AprilDe­cem­ber 2018 in a row and are ex­pected to touch the 800,000 mark by end of this fi­nan­cial year. Cu­mu­la­tive do­mes­tic trac­tor sales of Mahin­dra & Mahin­dra ( M&M), TAFE, Son­alika Trac­tors, Es­corts, and John Deere— the top five man­u­fac­tur­ers— grew 13 per cent in the first nine months of FY19.

Ra­jesh Je­jurikar, pres­i­dent (farm equip­ment sec­tor) at trac­tor mar­ket leader M&M, said that though the fes­ti­val sea­son de­mand was rel­a­tively lower than the com­pany’s ex­pec­ta­tions, its growth fore­cast for the trac­tor in­dus­try for the fi­nan­cial year end­ing March re­mains at 12 per cent. “For three years in a row, an in­dus­try growth up­wards of 10 per cent is con­sid­ered good,” he said. Je­jurikar said agri­cul­tural credit has a pos­i­tive im­pact on the trac­tor in­dus­try.

State sub­si­dies have also helped in trac­tor sales growth, said Shenu Agar­wal, chief ex­ec­u­tive, agri-ma­chin­ery at Es­corts, adding, “The ru­ral de­mand is strong. Trac­tor sales would com­fort­ably cross the 800,000 mark by the end of fis­cal 2019.”

Even mak­ers of con­sumer goods say their ru­ral sales have been out­pac­ing ur­ban mar­kets by a wide mar­gin. Ka­mal Nandi, busi­ness head and ex­ec­u­tive vice-pres­i­dent at Go­drej Ap­pli­ances, said the ru­ral mar­ket con­tin­ues to grow at 1.5 to 2 times that of ur­ban mar­ket. “Elec­tri­fi­ca­tion and lower pen­e­tra­tion of ap­pli­ances are the key fac­tors that are driv­ing this growth, apart from bet­ter har­vest,” he said.

Mayank Shah, cat­e­gory head, Parle Prod­ucts, said a good mon­soon in 2018 and the hike in min­i­mum sup­port prices (MSP) were the fac­tors driv­ing a dou­ble-digit growth in the ru­ral mar­kets. “With elec­tions near­ing (which usu­ally re­sults in avail­abil­ity of more money in the ru­ral econ­omy), I ex­pect sim­i­lar growth to con­tinue in the next two quar­ters,”

Be­sides elec­tion-re­lated spend­ing, there are ex­pec­ta­tions of more re­lief mea­sures from the gov­ern­ment for ag­grieved farm­ers. “One would ex­pect a pos­i­tive growth in the in­dus­try with farm­ers be­ing of­fered loan waivers. The ben­e­fit will come from the abil­ity of banks to lend as they re­cap­i­talise their loan books,” Je­jurikar said.

The gov­ern­ment’s plan to of­fer di­rect ben­e­fits to farm­ers will give a boost to trac­tor sales, said Agar­wal of Es­corts.

Data paints a story of dis­tress in ru­ral In­dia. Food in­fla­tion re­flects ru­ral dis­tress, even as non-food in­fla­tion on both con­sumer price in­dex and whole­sale price in­dex (WPI) re­mained above 5 per cent for months in a row. De­pressed farm con­di­tions can be broadly gauged from the WPI-based in­fla­tion rates, which wit­nessed fall in prices for the fifth month in row till Novem­ber 2018. So far, es­ti­mates sug­gest that less than 10 per cent of the to­tal pro­duc­tion of kharif crops has been pro­cured by state and cen­tral agen­cies.

In a De­cem­ber re­port, rat­ing agency Crisil cau­tioned that with the rabi sea­son show­ing clear signs of weak­ness, ru­ral In­dia's con­tri­bu­tion has come un­der a cloud. Un­less the sow­ing sit­u­a­tion im­proves in the next few weeks, there could be a trickle-down ef­fect on the sec­tors be­ing driven by ru­ral In­dia.

As of De­cem­ber 14, sow­ing, which ac­counts for 81 per cent of the to­tal sow­ing in rabi sea­son, was down 5.25 per cent year-on-year to 47.60 mil­lion hectare com­pared with 50.25 mil­lion hectare in the pre­vi­ous rabi sea­son, said Crisil, at­tribut­ing it to lower reser­voir lev­els. This is of con­cern, be­cause the rabi crop ac­counts for 40 per cent of In­dia's agri­cul­tural pro­duce in both vol­ume and value terms, said Crisil.

Shi­raz Hus­sain, for­mer agri­cul­ture sec­re­tary, how­ever, says the only rea­son why trac­tor and con­sumer pack­aged goods firms re­main buoy­ant de­spite farm­ers not get­ting right price for their pro­duce is that some part of their in­come come from peo­ple set­tled in cities as re­mit­tances. “There is no rea­son why sales of these items should go up when the re­al­ity is wages and non-farm wages have both dropped in ru­ral ar­eas," he said.

Ex­perts also at­tribute the counter in­tu­itive trend to con­trac­tion in share of agri­cul­ture to ru­ral in­come. Ex­plain­ing the di­ver­gent trend, Deven­dra Pant, chief econ­o­mist at In­dia Rat­ings, says, “Ru­ral is no longer syn­ony­mous with agri­cul­ture. Gone are the days when the ru­ral in­come in ma­jor­ity was agri­cul­ture in­come.” The pro­por­tion of agri in net value added (ex­clud­ing the de­pre­ci­a­tion) in GDP has fallen from 70 per cent in 197071 to 40 per cent in 2011-12, the lat­est year for which the data is avail­able, he said.

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