Tractor, consumer firms’ hope riding on agri package

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.