Indian Tractor Industry:

Issues, Challenges and Strategies

 Key points
 One third of world’s tractor production is in India
 Total turn over 10,000 Cr
 Total investment 8000 Cr
 Employment 28,000 people directly, 1,50,000
people indirectly
 Tractor population 3,000,000 compared to 900,000
in China
 F07 H1: Market Update
 Monsoons: Normal
 Kharif Production: + 1.2 % vs. last year
 Higher MSPs announced
 Good Farm credit:
 2005-06: Rs.1,16,370 Crs.
 2006-07(est.): Rs.1,75,000 Crs.
 BankNPAs increasing – slow down in
disbursements
Tractor – empowering the farmer
50

40

30

20

10

0
1970-71 2005-06

% share of farm power

 Scope of improving share of
mechanical power in agriculture
At present following agricultural operations are not fully
mechanized
Spraying
Inter-culture
Harvesting
Drying
Packaging
Storage
Mechanized tomato harvesting
Mechanized broccoli harvesting
Sales Data and Analysis
Category Units sold % growth
2005-06 2004-05 2005-06 2004-05
Car 1,052,287 980,849 7.28 19.37
UV 199,063 180,865 10.06 21.02
MPV 67,459 66,260 1.81 9.56
M&HCV 221,542 211,980 4.51 25.04
LCV 169,722 136,390 24.44 26.28
Scooters 992,032 983,127 0.91 4.72
Motor cycles 6,201,619 5,241,876 18.31 20.28
Mopeds 375,922 351,169 7.05 5.47
Three wheelers 437,072 374,657 16.66 16.38
Tractors 292,908 247,531 18.33 31
Total 10,009,626 8,774,704 14.07 17.91
TRACTOR INDUSTRY GREW AT A CAGR OF 11% BETWEEN
2004-05 AFTER THREE YEARS CONTINUOUS SLUMP
Tractor Industry (F-94 to F-2006)
(Number of tractors)

AGR
1.5% CAGR C
12.
5% 1.0%
R 1 292908
C AG CA
GR 247531
% 250378 254871 257998
16.0 220943
236076
215005
191202 190348
164306 171657
138235

17899 18132 19000 18615 15272 9586 10969 10422 11645 14037 14606 14955 13301
00

06
94

95

96

97

98

99

01

02

03

04

05
20
F-

F-

F-
F-

F-

F-

F-

F-

F-

F-

F-

F-
F-

INDIA UK
 F 05 SALES 247531

26364 4016
31696
10445 2448
7032
16020
935

65394
52851

30330

FORCE MOTORS ESCORTS MGTL HMT

M&M PTL TAFE GROUP VST
LT-JD NHI SONALIKA
 F 06 SALES 292908

4461 28297
32017
2749
13214 7900

19951
1228

85028

66667

31396

FORCE MOTORS ESCORTS MGTL HMT

M&M PTL TAFE GROUP VST
LT-JD NHI SONALIKA
 F05 STATEWISE SALES
16615
19894
389
1639
13998
3084
638
366
17078
12408
45958
594
1181
15560
12396 199
11546
23830
32692
11471
1041
4954

AP ASM BIH JHARK GUJ HRY

HP J&K KAR KER MAH MP
CHTSGR ORI PJB RAJ TN UP
UTRNCHL WB OTHERS EXPORTS
 F 06 STATE WISE SALES
28118
2418
22448
4335 771
9946
2349
1345
23237
44308 14572
758

18302 1300
25394
27949
683
12051
17804
6679 4940
23201
AP ASM BIH JHARK GUJ HRY
HP J&K KAR KER MAH MP
CHTSGR ORI PJB RAJ TN UP
UTRNCHL WB OTHERS EXPORTS
 History of Indian tractor industry
 1945 to 1960.
 War surplus tractors and bulldozers were imported for
land reclamation and cultivation in mid 1940's.
 In 1947 Central and State Tractor Organizations were
set up to develop and promote the supply and use of
tractors in agriculture and up to 1960, the demand was
met entirely through imports.
 There were 8,500 tractors in use in 1951, 20,000 in
1955 and 37,000 by 1960.
 History (contd…)
 1961 to 1970.
 Local production began in 1961 with five
manufacturers producing a total of 880 units per year.
Eicher, Gujarat Tractors, TAFE, Escorts, M&M.
 By 1965 this had increased to over 5000 units per year
and the total in use had risen to over 52000.
 By 1970 annual production had exceeded 20000 units
with over 146000 units working in the country.
 History (contd…)
 1971 to 1980.
 Six new manufacturers were established during this period
although three companies (Kirloskar Tractors, Harsha Tractors
and Pittie Tractors) did not survive.
 Escorts Ltd began local manufacture of Ford tractors in 1971 in
collaboration with Ford, UK.
 Others were HMT and PTL (SWARAJ)
 Total production climbed steadily to 33000 in 1975 reaching
71000 by 1980.
 Credit facilities for farmers continued to improve and the tractor
market expanded rapidly with the total in use passing the half
million mark by 1980.
 History (contd…)
 1981 to 1990.
 A further five (Auto Tractors, Haryana Tractors, United Auto
Tractors, Asian Tractors, VST Tillers) manufacturers began
production during this period but only last one survived in the
increasingly competitive market place.
 Annual production exceeded 75000 units by 1985 and reached
140000 in 1990 when the total in use was about 1.2 million.
 Then India - a net importer up to the mid-seventies - became an
exporter in the 80's mainly to countries in Africa.
 History (contd…)
 1991 to 1997.
 Since 1992 it has not been necessary to obtain an
industrial license for tractor manufacture in India.
 By 1997 annual production exceeded 255000 units and
the national tractor park had passed the two million
mark.
 India has now emerged as one of the world leaders in
wheeled tractor production.
 History (contd…)
 1997 to ...
 Seven new manufacturers have started production since 1997.
 Bajaj Tempo
 New Holland
 John Deere (initially with L&T)
 Same Deutz-Fahr (initially with Greaves)
 Sonalika
 Standard
 Indo Farm
 Negative growth phase
 After sustaining a robust 14 per cent growth
rate in 1994-98, the tractor industry's growth
for the next two-three years had to come
down as a natural process of alignment to the
long-term growth of 8 per cent.
 Over-production
 Billing
 Drought in 2001 and 2002
 Piling of government stock of food grains upto
75 MT
 Current situation
 Intense competition has led to rapid advances in design
and quality
 Saturation achieved in Punjab with tractor density as high
as 82 per 1000 ha against Indian average of 12.4, world
average of 17.4 and 32.1 in developed countries.
 But average HP per hectare is only 0.4 in India as against
2.6 in developed countries and 1.4 in world.
 This give average HP per tractor of only 32.26 in India
where as, developed countries and world HP per tractor is
81.
 8 Dimensions of Quality
Performance - primary operating characteristics
Features - little extras
Reliability - no failure in a given time span

Conformance - meeting standards

Durability - length of usefulness
Serviceability - speed, ease of repair
Aesthetics - pleasing to the senses
Perceived quality - reputation
 Horse Power wise Tractor Sales
160000
in India
140000

120000

100000 21-30 HP
31-40 HP
80000
41- 50 HP
60000 > 51 HP

40000

20000

0
F-00 F- 01 F- 02 F- 03 F- 04 F-05 F-06
 Future prospects
 India has currently 168 million hectares of cultivable land
which is second largest in the world.
 Current tractor population base in India is 2.4 million
tractors.
 50 per cent of India's arable area, that is, more than 80
million hectares is covered by 10 million holdings. Even if
half these holdings own tractors, it would push the total
tractor population above five-million.
 Driving factors
 De-fragmentation and nuclear families
 Irrigation facilities
 Improvement in standard of living
 Cheap credit
 Rise in MSP (Minimum Support Price)
 Other income – poultry, dairy, livestock, infrastructure
projects
 Improved features and quality of products
 Economic growth
Construction Equipment – The New Frontier
Medium sized CE machinery
demand has shot up due to
various infrastructure projects in
progress
Tractor manufacturers are
providing CE attachments and
are giving tough competition to
established players like JCB,
TATA, CAT and L&T
 Export scene
 Exports grew by 41% from 19894 in F05 to 28118 in F06

 Africa – Libya, Algeria and South Africa offer sophisticated market

while other African countries employ government tender system

 North America – Demand of 50 HP tractors for secondary

operations in the US has made it the largest emerging market for
Indian tractor exports. Because of large cost-advantage from current
local volumes, and improved manufacturing and product
technology, Indian companies can aim and achieve a significant
share in this segment of the US market. This is assuming they meet
expectations on quality/feature/delivery fronts and provide top line
after-sales-service.
 Horse Power wise Tractor Sales
12000 in Canada

10000

8000
< 40 HP
6000 40-100 HP
> 100 HP
4000

2000

0
2002 2003 2004 2005 2006
 Horse Power wise Tractor Sales
160000
in US
140000

120000

100000
<40 HP
80000 40 - 100 HP
>100 HP
60000

40000

20000

0
2002 2003 2004 2005 2006
 Export scene (contd…)
 European Union – Turkey and Eastern Europe offer a
growth opportunity whereas other markets are stagnant

 Other major destinations for Indian tractors are the Middle

East, SAARC and South East Asian countries.
 Challenges ahead
 Fuel shortage
 Conformance to European norms on
 Safety and ergonomics
 Noise
 Emission
 Electronics
 Bottlenecks in form of testing and certification facilities in
India
 Competition from low cost Chinese products
 Enhancement of farm machinery technology
 Alternate fuels
Tractor manufacturers are reducing fuel consumption of their
models as well as are working with alternate fuels to meet the
challenge posed by global fuel price hike
•Fuel efficiency improvement project
•LPG / CNG operated tractor
•Bio-diesel as additive to diesel
•Diesel + Electric = Hybrid power
•Hydrogen
 Safety and Ergonomics
 India
being a signatory to the WTO, Indian tractor
manufacturers have to adhere to global regulations
 Emission
Tractor industry
successfully achieved
the emission requirement
of EURO Stage II w.e.f.
1-10-2005.
Next target is EURO
Stage IIIA w.e.f. 1-4-
2010. This will require
advanced technologies
like, Rotary pump,
Turbocharger,
Intercooler, Exhaust gas
re-circulation, Common
rail injection.
 Electronics
Precision farming based on GPS
Yield mapping
Input management
Tractor electronics
Traction control
Engine optimization