Marking a strong revival, domestic tractor sales are likely to record 16-18 per cent growth for the current fiscal owing to a monsoon-led surge in demand that was enough to offset the impact of demonetisation in the latter half of the year, says a report. According to Crisil, the previous two fiscals (2014-15 and 2015-16) had seen “double-digit de-growth as monsoons played truant and farm sentiment wilted”. “We estimate domestic tractor sales to close fiscal 2017 with an impressive 16-18 per cent growth, riding a monsoon-led surge in demand that was enough to offset the impact of demonetisation in the latter half,” Crisil said.
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The report noted that sales revived as the south-west monsoon came in normal which helped increase Kharif production and Rabi sowing and unleashed pent up demand for tractors.
As per Crisil, October 2016, saw a record 44 per cent spurt on account of two major festivals – Dussehra and Diwali, lifting sales for the April-October period by 26 per cent.
“The fervor could well have continued, going by the inventory with distributors, but for the demonetisation move,” the report said.
“Transactions in the rural areas, which account for the bulk of domestic tractor sales, are largely cash-based. With cash drying up, sales took a beating – with a de-growth of 13 per cent in November,” it added.
Tractor sales in December had seen a modest growth of 7 per cent and 5 per cent in January.
“Growth is expected to remain in single digits even for February and March, as farmers cope with the note ban, and gradually shift to using cheques and online transfers for making purchases,” the report said.
Among others, the single-digit growth is attributed to pending payments of Kharif harvest which have been slow to materialise.
“Further, with financiers focusing on collection of instalments delayed by the note ban, tractor loan disbursals – and thereby sales — are expected to be slow,” the report said adding that the impact is expected to be only short term and sales should recover by the first quarter of 2017-18.
Going forward, the rating agency noted that while indications are that the south-west monsoon will be normal in 2017, there is a threat of El-Nino conditions in the second half of next fiscal. However, this may not impact the kharif season crops.
Further, the report noted that tractor sales would also benefit from favorable budget announcements such as record farm credit disbursal of Rs 10 lakh crore.
“Based on this, we see tractor volumes picking up in coming quarters, though, for lack of a low base as was the case this year, fiscal 2018 could close with a relatively sober growth of 8-10 per cent,” the report said.