LAHORE  - High tractor prices, heavy taxation, lack of farm mechanization policy, soaring inflation and devaluation of rupee have all aggregated to sharp drop in the sale of tractors, as sale and production of Fiat Tractors dipped to 1,622 and 1,714 units in July-Sept 2013 against 5,339 and 3,489 units in corresponding period of last year. Similarly sale and production of Massey Ferguson tractors also fell to 4,556 and 3,281 units as compared to 6,094 and 4,782 units, latest data reveals.

While Pakistan is constantly showing negative year on year tractor sale trend, producing 48,000 units last year against 80,000 units in 2010-11, neighbouring India has registered 7 percent jump in sale of tractors by manufacturing 632,279 units in the current fiscal year, as levies by the Indian government have never exceeded the 5-8 per cent figure, with consistent and massive subsidies to the agri sector, industry experts said.

According to them, the Indian tractor industry has experienced strong volume growth during FY10-13 on the back of favorable cyclical and structural demand drivers. They said that the demand-side economics in the tractor industry continue to find favor from factors such as support from the government of India towards rural development and agri-mechanization, increase in credit flow to agriculture; earnings of farmers from crops and growing NPAs of tractor loans with public sector banks.

Indian tractor industry started the year strong with robust 31% YoY growth in sales in Apr-13, followed by healthy volume growth in May-13 as well. FY14 growth is also expected to expand by 5%-7%.

In contrast to India, Pakistan’s tractor industry has almost closed, rendering some 300 + tier 1 suppliers and thousands of workers who work in these factories and down stream industries out of work.

The high GST rate, lack of subsidies, and unavailability of soft term finance to the farmer has dealt a severe blow to this once flourishing industry, which was truly a flagship of Pakistan’s engineering prowess with global exports of tractor parts and CBUs.

Due to high tractor prices this basic tool of agriculture is no longer within reach of even the large land holding farmers and there has been no support both at federal and provincial level in the new government setup.

Tractor prices surged by Rs.100,000 to Rs. 200,000 with the levy of 10% GST in January 2013 depending upon tractor engine horse power, plunging the industry into turmoil and endangering investment of billions of rupees.

The tractor assemblers have enjoyed 9-10% after tax profitability (for cars this average is around 2-4%) for the last 4-5 years, mainly due to high level of localization of 1000s of parts which are cheaply produced and rupee devaluation proof. The car assemblers profitability per unit is much lower mainly because of low level of localization.

It is to be noted that Pakistan produces the most economical tractors in the world mainly due to the competitively priced parts manufactured by the auto parts manufacturing industry. The localization level percentages of the tractor sector are the highest amongst the auto parts industry, with deletion levels up to 93%. A tractor that cost Rs 6-7 lac in Pakistan costs around Rs 10-11 Lacs in India. It should also be understood that this industry is cyclic in nature, and the cycle is based on the harvest season of various crops mainly wheat, cotton and rice. The peak season for tractor sales is different from the peak period of spare parts sales which is further sub divided into engine repair and transmission repair. Any changes in terms of tariffs or subsidies affect the sales of this cyclic industry adversely.

The industry experts have suggested the government to constitute a committee under the umbrella of Planning Commission to work seriously for the revival of indigenous tractor industry with a view to achieve the ultimate goal of enhanced per acre yield and food security.

Pakistan’s per hector horse power currently stands at half of India and we need 100,000 tractors per year for 8 years if we are to match India’s per hector horse power. The industry experts warned that as tractors are of prime importance to the agricultural sector itself, the rural economy would grossly suffer with dangerous consequences if the government did not take immediate remedial measures.

The government can also start soft loaning by providing subsidy on overall production of tractors to run the sector on a uniform patron. Present subsidy schemes disturb industry tractor and its vending industry, restricting the production to few limited seasons.

They said that GST regime should be fixed at 5% as is the case of India, besides imposing duty of 15% on imported tractor. Special low interest rate-long payback credit line should be introduced by the government using the instrument of commercial banks, they suggested.