Tractor Sales in India to Reach Record a Second Year, Group Says

Tractor sales in India, the world’s second-largest wheat and rice producer, may reach a record for a second year as rising farm output and all-time high commodity prices drive demand, according to an industry group.

Demand may increase between 12 percent and 15 percent in the year that began on April 1, from about 540,000 units a year earlier, Rohtash Mal, president of the Tractor Manufacturers Association of India, said. Domestic sales last year were about 480,000 units, while the remainder was exported, he said.

India is forecast to have “normal” monsoon rains for a second season this year and the government last week said it will pay farmers record prices for rice, oilseeds, cotton, corn and lentils. Increased sales may boost profits at tractor makers including Mahindra & Mahindra Ltd. (MM), Escorts Ltd. (ESC) and HMT Ltd. (HMT)

“A non-availability of human power, good surpluses in cash at the hands of the farmer, a good monsoon last year and hopefully another good one this year, is creating this demand,” Mal said in a phone interview yesterday. “We should be looking at double-digit growth.”

India’s monsoon, which accounts for more than 70 percent of its rainfall, has been 3 percent above a 50-year average since June 1, according to the nation’s weather bureau. Monsoon rains will be 98 percent of the average in this June-to-September season, the Indian Meteorological Department said April 19.

Agriculture makes up about one fifth of Indian’s economy and a bumper harvest boosts rural incomes, driving spending from cars to gold. Commodities from wheat to rice, corn and cotton have rallied in the past year, boosting returns to farmers.

Rice production in the 2011-2012 crop season beginning July 1 may jump 8.3 percent to 102 million metric tons from 94.1 million tons this year because of an increase in the guaranteed prices for the crop paid to farmers, Agriculture Secretary P.K. Basu said on May 13.

Monsoon Hope

“Good rainfall does mean a higher demand,” said Mal, who is also executive director at Faridabad-based Escorts, India’s third-largest tractor maker. “A good monsoon signifies hope, aspiration and people do look at the sky as a community and say, well there are good days ahead.”

The outlook for growth in tractor sales is “very good” as farming in India becomes more mechanized though the scale of increase this year will be less than the 20 percent in the 2010- 2011 fiscal year, he said.

“India has been severely under-tractorized, our index of horse-power per agricultural acre is almost a quarter of that of Europe,” said Mal. “This gap is not going to be made up over night.”

To contact the reporter on this story: Madelene Pearson in Mumbai at mpearson1@bloomberg.net;

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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