Despite the impact of COVID-19 second wave, tractor sales volume is expected to grow in low-mid single digits of 3-6 per cent in 2021-22, mainly on a higher base following the 27 per cent growth witnessed in FY21, India Ratings and Research (Ind-Ra) said on Thursday.
Tractor sales volume is likely to pick up from the second quarter of the ongoing fiscal as localised lockdowns and restrictions have been relaxed, the rating agency said in a statement.
"The macroeconomic tailwinds mostly remain intact for the rural economy, including the normal monsoon forecast, the expectation of a strong Kharif harvest, and improved rural income," it said.
Citing data released by original equipment manufacturers (OEMs), Ind-Ra said the tractor industry witnessed a sharp rebound in sales volume in June 2021 despite the second COVID wave had impacted sales in April-May 2021 that resulted in average monthly sales dropping to 76 per cent of the monthly sales achieved in the fourth quarter of the financial year 2020-21.
However, it said given that the first quarter is generally a critical quarter with seasonally higher sales of around 33 per cent, especially in May and June for land preparation for the Kharif season, the sales lost are unlikely to be recovered in the subsequent part of the year.
Ind-Ra further said tractor purchase may be deferred in favour of saving for/ incurring higher medical expenses amid the anticipation of a third covid wave.
"In case, the country witnesses a third wave which is as severe as the second one resulting in localised/nationalised lockdowns, the growth on a year-on-year basis could be flattish," it said.
On the impact of the second wave of COVID-19, the rating agency said it was more widespread and severe in rural India compared to the first wave which was largely restricted to urban regions.
Collectively, the top five states -- Uttar Pradesh, Madhya Pradesh, Rajasthan, Maharashtra and Gujarat -- accounting for 56 per cent of the tractors sold in India, recorded around 34 per cent of the total COVID-19 cases in India, with 40-75 per cent of their cases during the second wave, being recorded in rural districts.
"Ind-Ra believes the second wave and the anticipation of a subsequent wave could alter the consumption preference in rural regions in favour of saving for contingent medical expenditure," it said.
Moreover, lower-income levels in the first quarter of financial year 2021-22, as well as loss of lives, could dampen consumer sentiments and hence tractor purchase may be deferred, it said adding "this will especially be in case of replacement demand, which accounts for 30-35 per cent of the total volumes".
However, steps were taken by the centre to improve farm income, including agricultural infrastructure fund, increasing subsidy for fertilisers and minimum support price for rabi crops and high procurement of crops in the financial year 2020-21, has led to higher cash in the hands of farmers and thus enabling the purchase of tractors.
"Moreover, the government's thrust on rural infrastructure is likely to aid growth in non-agricultural tractors, which accounts for around 30 per cent of the tractor volumes," Ind-Ra said.
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