Tractor industry

ECONOMY/ GOVERNANCE

Topic: General Studies 3:

• Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 
• Effects of liberalization on the economy

Tractor industry

Context: Tractor sales shooting up by 38.5% in July 2020 have triggered quite a buzz in the market.

Evolution of the tractor industry in India

• The history of tractors in Indian agriculture goes back to the introduction of steam tractors in 1914 for the reclamation of wastelands in Punjab. 
• After Independence, the Central Tractor Organisation (CTO) was set up to promote the use of tractors in agriculture. 
• In 1951, the tractor industry was included in the “Core Sector” of planned economic development, and was also placed under the “licence raj”. 
• Interestingly, even until 1960, the demand for tractors was being met entirely through imports.
• It was only in 1961 that two companies, Eicher Tractors Ltd. (in collaboration with German Company) and Tractors and Farm Equipment Ltd. (TAFE) (in collaboration with UK Company) started manufacturing tractors in India.
• In 1965, Mahindra and Mahindra jumped in the fray in collaboration with the International Tractor Company of India. 
• As a result, domestic production of tractors rose from 880 units in 1961-62 to 5,000 units in 1965-66
• The Green Revolution gave a fillip to the demand for tractors to meet the pressing need of completing timely operations in agriculture. So, the government decided to invite additional entrepreneurs into tractor manufacturing in 1968.
• In 1974, Punjab Tractors Ltd became the first public sector company to manufacture tractors with indigenous technology. In 1982, the indigenous Mahindra brand of tractors was also launched.
• However, it was only in 1991 that tractor manufacturing was completely de-licenced in India. It increased competition, improved quality, and offered more choices to the farmers

Status of Tractor Industry

• India is the largest manufacturer of tractors (excluding sub 20 horsepower (hp) belt-driven tractors used in China), followed by the US and China. 
• Tractor production in India shot up from 139 thousand in 1991 to almost 900 thousand units in 2018-19
• Indian Company Mahindra & Mahindra (M&M) has emerged as the largest player with a 40 per cent share of the market (FY 2019)
• In 2018-19, India exported almost 90,000 tractors to various countries ranging from the US to African nations. 

• This speaks of an “atmanirbhar” and competitive industry.

What contributed to this success of the tractor industry? 

• First, the de-licencing of 1991 was a harbinger of major change in the industry. 
• Second, the availability of bank credit for buying tractors helped the market to grow. Almost 95% of tractors are bought on bank credit.

Challenges with the sector

• Inefficient Usage: Tractors usage in most states hovers around 500-600 hours per year compared to a benchmark figure of 800-1,000 hours for efficient utilisation. 
• This is leading to “overcapitalisation of farms” in some parts of India, especially Punjab/Haryana belt
• Inaccessible by Small & Marginal Farmer: Due to lack of economic assets, small & marginal farmers still depend on bullocks for farm activities.

Way Ahead – Innovation

• India has to undertake innovative solutions like “Uberisation of tractor services”. 
• The “Uberisation model” could make tractor services perfectly divisible, accessible and affordable even by small holders without owning the machine.
• Individual farmers who own tractors can also avail of this platform to render tractor services to others and earn some money
• Agri start-ups and innovators of the digital world need to enter this field and promote efficient utilisation of farm machinery.
• The future of the tractor industry will soon include combining tractor services for ploughing and sowing seeds to using sensors, cloud computing and artificial intelligence for precision farming. 

Conclusion

• Dovetailing the digital revolution with farm machinery has already started in the US and Europe, ushering in what Howarth Buffett (a farmer and brother of billionaire Warren Buffett) calls the “Brown Revolution”. 
• The booming digital economy of India offers an opportunity to cut costs, increase profitability of cultivation, and thus not only expand the tractor market but also reduce drudgery in farm work

Connecting the dots:

• Economic Reforms of 1991
• Green Revolution 2.0