The Hindu Business Line : Tractor sales tumble — Price cut hopes add to sector woes

It has removed the 16 per cent excise duty on tractors. But even these are not enough, it appears, to help the tractor industry, which saw its fortunes improve in the second half of 2003-04, a trend that continued in the first quarter of 2004-05.

Since then, there has been absolutely no activity in the market, according to tractor manufacturers.

One reason for this is the delay in the monsoon over most parts of the country, which has dampened sentiment a lot. The second and a more important reason, farmers' expectations on a major price cut after the Budget completely exempted tractors from excise.

After the Budget, tractor manufacturers reduced prices by 3 per cent to 4 per cent, which translates into a price cut of Rs 4,500 to Rs 7,000 depending upon the model. However, farmers were expecting a bigger price cut - in the range of Rs 35,000 to Rs 40,000.

This would have been possible if the manufacturers had also got excise exemption on inputs, which has not been announced in the Budget.

The net result is that there has been "no activity" at all in the market, according to reliable sources. Meaning, there has been no tractor sales.

When contacted, Mr K.J. Davasia, Executive Director - Farm Equipment Sector, Mahindra & Mahindra, confirmed that the market was dull after the Budget. "The hype about zero excise duty (on tractors) had fanned up unnecessary expectations," he said.

Ms Mallika Srinivasan, Director, Tractors and Farm Equipment Ltd, says that farmers are waiting and watching to see if there is going to be a further price reduction. "What is happening is that expectations have been raised and we are not able to deliver," she said.

Mr Davasia points out that there is need for a massive communication exercise involving the more than 5,000 dealers in the tractor industry. The message has to be communicated to the farmers that tractor manufacturers will not be able to pass on the full 16 per cent excise duty cut to them as the net benefit is only 3 per cent to 4 per cent. This is because excise duty on inputs has not been exempted and this works out to 12 per cent.

Both Ms Mallika Srinivasan and Mr Davasia say that there is definitely a gap between farmers' expectations and the actual price cut and this has dampened sentiment a lot. However, Mr Davasia is confident that this can be overcome through "persuasive communication" and once the monsoon revives sales should pick up.

Would he hazard a guess on growth for the year? Mr Davasia said that the tractor industry witnessed a 50 per cent cumulative drop in sales for the last three years. Even in 2003-04, the first half saw a 20 per cent decline in sales. The trend got reversed from the third quarter with the industry growing by a little over 10 per cent for the year. In the first quarter of this year, industry sales have grown by 48 per cent. Mr Davasia said he expected a "reasonably good progress" this year compared to last.

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