INDIAN TRACTOR INDUSTRY - MSP hikes coupled with enhanced procurement to support rural cash flows
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INDIAN TRACTOR INDUSTRY
MSP hikes coupled with enhanced
procurement to support rural cash flows
JUNE 2021
1Highlights
▪ The Government has hiked the MSP of kharif crops for marketing season FY2022, with a view
to ensuring remunerative prices to the farmers for their produce.
▪ Third advance estimated released recently indicate that food grain production is estimated to
Click to Provide Feedback have increased by 2.7% to a new record of 305.43 million tonnes in FY2021
Government remains committed
▪ Enhanced outlay by Government towards MSP procurement has remained key in ensuring stable
towards supporting rural cash flows; crop realisations and supporting farm cash flows.
MSPs hiked to ensure remunerative
prices
▪ MGNREGS outlay also saw a substantial increase in previous fiscal, with the Government
committed towards supporting migrants workers; acted as a strong boost for rural
sentiments.
▪ Indian Meteorological Department, in its second-stage projection, has forecast above normal
rains for the third consecutive year; the same has boosted farm sentiments.
▪ Tractor sales remained robust in FY2021 with the industry touching all-time high of ~9 Lakh
domestic industry volumes. Even as spread of pandemic to rural area remains a concern, industry
volumes are expected to remain healthy, aided by healthy rural cash flows. Given the high base,
growth is expected to remain at modest levels (1-4% forecast for FY2022).
22
www.icra.inExpectation of stable rural cash flows to support industry demand
EXHIBIT 1: Key supportive elements for rural cash flows
Higher MSP and Government Agri Production Monsoon
Procurement Support and Advance estimates indicate a IMD has forecast a third consecutive normal
Higher MSP and enhanced procurement
Incentive Schemes continuation of healthy increase in monsoon, thereby boosting sentiments;
food grain production for the temporal and spatial distribution of rainfall
by Government agencies have aided Various ongoing initiatives
recently concluded rabi harvest would, however, continue to remain critical
realisations and consequently to improve rural economy
supported farm cash flows remain a positive
4
2
1 3
Source: ICRA Research
33
www.icra.inModerate hikes in MSP for kharif crops
EXHIBIT 2: MSP for Kharif crops for marketing season FY2022
8000 1.1%
7000 5.0%
3.8%
6000
5000
Rs./Quintal
4000 2.5%
3000 4.5%
3.9% 4.7%
2000
1000
0
Paddy Bajra Ragi Jowar (Hybrid) Moong Urad Cotton (Medium
Staple)
2020-21 2021-22
Government has hiked the MSP of kharif crops for marketing season FY2022, to ensure remunerative prices to the farmers for their produce
and aid farm income in ongoing fiscal
Source: Ministry of Agriculture & Farmers Welfare, ICRA Research
44
www.icra.inThird advance estimates indicate a healthy production
EXHIBIT 3: Third Advance Estimates of Production of Food grains for FY2021
450 6.0%
400
350 2.7%
2.0%
300
Mn Tonnes
250
200
150 0.8%
100
11.1% 10.1%
50
0
Wheat Cereals Total Pulses Sugarcane Total Foodgrains Total Oilseeds
2018-19 2019-20 2020-21 (3rd Adv. Est.)
India's food grain production is estimated to have increased by 2.7% to a new record of 305.43 million tonnes in FY2021, on better output of
wheat, cereals and pulses amid good monsoon precipitation last year
Source: Ministry of Agriculture & Farmers Welfare, ICRA Research
55
www.icra.inEnhanced procurement continues to support farm sentiments
EXHIBIT 4: Trend in Wheat Procurement EXHIBIT 5: Trend in outlay towards wheat procurement (Rs. In Crore)
450 7% 40% 90,000 10% 50.0%
14% 20%
400 30% 80,000 40.0%
16%
-5%
350 34% 70,000 1%
20% 24% 30.0%
300 0% 60,000
Lakh Tonnes
Rs. In Crore
-18% 10% 43% 20.0%
250 50,000
4%
200 0% 40,000 -14% 10.0%
150 30,000
-10% 0.0%
100 20,000
50 -20% 10,000 -10.0%
0 -30% - -20.0%
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22* 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Wheat Procurement (In Lakh Tons) Growth (%) MSP Outlay (Rs. In Crore) Growth (%)
▪ Procurement of 416 metric tonne of wheat is an all time high, surpassing the previous high of 389 metric tones
▪ Outlay towards procurement of paddy in the previous marketing season had also remained strong
▪ Enhanced procurement has remained the key in ensuring stable crop realisations and supporting farm cash flows
Source: *FCI, Food & Public Distribution (DFPD); Data till June 08, 2021, Department of Agriculture, ICRA Research`
66
www.icra.inSubstantial increase in outlay via MGNREGS also supported rural cash flows
EXHIBIT 6: Annual trend in government outlay towards MGNREGS
140,000
Funding support via MGNREGS substantially
120,000 enhanced in view of the pandemic
100,000
80,000
60,000
40,000
20,000
44,395 23,497 59,055 23,532 65,191 23,374 72,402 26,796 72,423 26,547 127,748 38,931
0
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Total Expenditure (Rs. In Crore) Persondays (In Lakh)
MGNREGA outlay saw a substantial increase in previous fiscal, with the Government committed towards supporting migrants workers; acted as
a strong boost for rural sentiments
Source: Nrega.nic.in ICRA Research
77
www.icra.inForecast of third consecutive normal monsoon a positive
EXHIBIT 7: Trend in monsoon rainfall over past few years IMD FY22
Forecast
120 -12.6% -9.7% 8.8% 8.9%
-14.5% -3.1% -5.5%
100 LPA
80
60
40
20
0
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022e
IMD's forecast % of LPA Actual rainfall % of LPA
Indian Meteorological Department, in its second-stage projection, has forecast above normal rains for the third consecutive year; the same has
boosted farm sentiments and provides hope for the upcoming sowing season
Source: IMD, ICRA Research
88
www.icra.inIndustry volumes touched all-time high in FY2021; expected to remain healthy
EXHIBIT 8: Annual trend in tractor domestic sales volume
All time high FY2021
1,000,000 27% 30%
1-4%
900,000 25%
11%
800,000 -10% 20%
22%
700,000 20% 15%
-2% -13% 18%
600,000 11% 10%
-10%
500,000 5%
400,000 0%
300,000 -5%
200,000 -10%
100,000 -15%
0 -20%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E
Tractor Domestic sales Volume YoY Growth
▪ Tractor sales remained robust in FY2021; industry touched all-time high of ~9 Lakh domestic industry volumes
▪ Even as spread of pandemic to rural area remains a concern, industry volumes are expected to remain healthy
▪ Given the high base, growth is expected to remain at modest levels (1-4% forecast for FY2022)
Source: Nrega.nic.in ICRA Research
99
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Group Head Co- Group Head Sector Head
shamsherd@icraindia.com ksrikumar@icraindia.com rohan.kanwar@icraindia.com
0124- 4545 328 044 – 4596 4318 0124 – 4545 808
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022- 6114 3406 080 – 4332 6401 0124 – 4545 860
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