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Tractor sales seen down on poor monsoon

Arif Sharif in New Delhi

Tractor sales in India, the world's biggest market, could drop by five to 10 per cent in the financial year to March 2003 as the country's worst drought in 15 years is likely to hurt farm incomes, industry officials said.

The June-September monsoon, the lifeblood of agriculture-dependent India, has been unevenly distributed this year, causing a drought in nearly the entire country.

Agriculture contributes about a quarter of India's gross domestic product, employs about 70 per cent of its more than one billion people and is one of the main drivers of demand.

"We were forecasting flat retail sales this year but now effectively it should be a 10 per cent decline," Rakesh Chopra, head of the agri-machinery division at third-ranked Escorts Ltd, told Reuters.

India's tractor industry has already had two bad years. Sales plunged 9.47 per cent in 2000-01 (April-March) as a drought hit three key states and shrank 17 per cent in 2001-02 as surplus food stocks hurt grain prices and farm incomes.

The industry estimates that sales have dived about 15 per cent in the first quarter of this financial year.

Chopra said there could be some improvement if the monsoon revived in the next few days but the damage had been done.

The poor outlook has already hit shares of tractor companies.

Market leader Mahindra's shares have dropped 21 per cent since July 10, second-ranked Punjab Tractors' by 10 per cent, Escorts by 20 per cent and Eicher Ltd, the fifth-ranked firm, by 27 per cent.

Mallika Srinivasan, director at Madras-based Tractor and Farm Equipment Ltd, the country's fourth largest tractor maker, said she expected industry sales, at best, to be flat this year and in the worst case, drop by about five per cent.

TAFE's sales rose 8.6 per cent in the first quarter to June on the strength of several new models introduced over the past year.

Srinivasan said it was difficult to link industry growth to a single factor, though the failed monsoon would be an influence.

"The monsoon was near normal last year but tractor sales still fell," she said, referring to bumper crop production which caused grain prices to crash and farm incomes to drop.

The drought would probably compel companies to offer two to three months of credit to farmers to push sales, a practice seen last year as well, she said.

Industry officials said sales could be lifted by a cut in interest rates on bank credit for tractor purchases, which remained nearly unchanged in the past year despite interest rates falling across the economy.

Almost 90 per cent of the tractors bought in the country use bank credit.

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