Interview with T.R. Kesavan, President, Tractors Manufacturers Association

President, Tractors Manufacturers Association,

Senior Vice President (Marketing & Product Strategy), Tractors and Farm Equipment (TAFE)

Company Description: The Tractor Manufacturers Association (TMA) is a non-government, not-for-profit, tractor industry led and managed organisation, playing a proactive role in India’s agricultural development.  Founded over 25 years ago, TMA - India’s premier business association in farm mechanisation, works to create and sustain an environment conducive to the growth of the tractor industry in India, partnering industry and government alike through advisory and consultative processes. With its Headquarters in New Delhi, TMA serves as a reference point for the Indian Tractor Industry. ) TMA is housed under the leading Chambers of Commerce and Industry in India, the Confederation of Indian Industry (CII) with headquarters in New Delhi.

What is the size of the Indian tractor industry? And going forward, what will be its size?

The size of the Indian tractor industry is about 800,000 units which includes all tractors in the sub 100 HP range (including the sub 20 HP range also) The market currently is soft but cyclicality of the market is something the industry is used to and so overall the tractor industry in India in the long term may grow at a volume CAGR of 7pc over the next few years though in the current fiscal we foresee just about 3pc at the most.

What are the current capacities in the tractor industry and what are the utilisation levels at this moment?

The current capacities according to published reports are for 1,100,000 units per annum. Capacities have increased during 2008-12 at a CAGR of 9pc. According to the same report the capacity utilisation was about 81pc.

Like the automotive industry, is the tractor industry also going through an evolution in terms of better technology, more powerful and fuel efficient engines, etc?

Definitely! The technology used in tractors is being improving on a regular basis. Especially in India, we are constantly working on the reduction in emissions. We are already complying with Term 3A norms (equivalent to BS-III emission norms applicable to automobiles).  We are now planning to upgrade our engines to meet Term 4 emission norms. This is because the TMA is following European standards. I think by 2017 or so, we should be able to fulfill our objective.

What kind of investments will be flowing in the Indian market for the next few years? And will the overseas players account for a major chunk of them?

The Indian manufacturing companies have always been talking about investments. Even the overseas firms are pumping in some amount. Anything between 500 crore +is the amount that I can anticipate in the next few years in the country. The amount includes the outlay earmarked by both domestic and international firms. Two of the lead players in the industry are augmenting capacity by about 30pc plus. India with its proven design, engineering and manufacturing strengths and a reputation for low cost high quality manufacture is bound to be a manufacturing hub for world markets. However, the Indian experience and expertise is in the sub 100HP range. There is a growth opportunity here that existing manufacturers in India could capitalise on. However, in terms of investments for augmenting capacity, we do not foresee any major/ significant activity in the immediate future by overseas players.

How much does this industry contribute to India’s GDP? And going forward what are its prospects?

The tractor industry is inextricably linked to agriculture. The agricultural industry’s contribution to the country’s GDP is pretty small today. And out of that the tractor industry’s contribution is also minuscule. Agriculture is today driven by farm mechanisation that is powered by tractors. So we can say that tractor industry is a significant contributor to agriculture, which accounts for close to 15pc of India’s GDP.

While foreign brands like John Deere, New Holland, et al are making big ticket investments in India, domestic players like Mahindra, Tafe, etc have foreign tie-ups and acquisitions? Does it mean that the Indian firms are at par with their global counterparts?

In India, the manufacturers generally use smaller horsepower tractors compared to any part of the world. This is because we have small farms. Almost 80pc of the farms are less than 2 acres. So what we require is a very appropriate technology (for small hp tractors). We are talking about the tractors which are used for regular farming. So in the small-powered segment products, we are on par with global standards. Moreover, the industry has been exporting its product quite a bit to all over the world. So once we start making the higher-powered products, we may attain global standards.

Will there be more overseas acquisitions by Indian players in the next few years?

It’s a very difficult question to answer. As TMA, we don’t know about each company’s individual plans. But knowing what is happening in the world, I am sure there will be more mergers and acquisitions in all spheres.

Can the Indian industry be bigger than the Chinese one in the foreseeable future?

The Indian industry is primarily known for its four-wheel tractors. We are the largest manufacturers globally and manufacture close to 6 lakh units. In China, the industry players make 2 lakh such units. Moreover, the Indian players have played a significant role by exporting on a large scale to global markets. We definitely have an edge over the Chinese players when it comes to exports.

Will the tractor industry be impacted by the rising cost of diesel fuel?

When the cost of diesel goes up, all the industries are adversely impacted.  But what the industry players have been doing on a regular basis is enhancing the fuel efficiency of their products.

Does TMA support Free Trade Agreement (FTA) with Europe and other nations?

India has come to a stage where we have to now work on our own strengths and not be concerned about trade barriers. And I think we have learnt to work. So my belief is that today homegrown tractor manufacturers has done a reasonably good job on exports based on the strengths of their products, pricing, services offered and also on performance. I think that should be our aim rather than worrying about the sops offered by the government. Sops are always welcome, but I think we should always stand on our own strengths.

Do you witness rampancy of spurious parts just like the way other vehicle manufacturers witness?

A tractor industry is no different from other vehiclemaking industries. We are selling the products which have been there in the market for some time. I always believe that the market for the tractor industry will be able to garner out of OEMS will always be 20-25pc. And there are not a lot of ill-fit parts available in the market. And that is something nobody can avoid because any roadside mechanic can repair a tractor today. So it’s another way of serving our customers.

As the auto industry has come out with vehicles run on alternate fuel propulsions, can we expect similar benchmarks being created in the tractor industry too?

Our industry has products which can work on biofuels. But tractor being a different product, I don’t think you will suddenly find companies working on renewable energy that fast. This is because a tractor requires a minimum horsepower pull or torque of the engine. So we can go to a certain extent on churning out biofuel-run products or developing highly fuel-efficient and environment-friendly engines.

Mahindra has created a benchmark by launching an entry-level low-cost Yuvraj tractor.  So is there any scope for such Nano-like tractors? 

Whether it is Tafe or Mahindra or any other company, what we are really trying to uncover is the unspoken nature of the farmer where they may have a small acreage. And they will do what we call as ‘very low tillage’ (not very deep). And then there are some appropriate products being developed. And I genuinely believe that there will be a market for this product. It is also being used for intercultural weeding. And probably what these small tractors will do is start replacing, to a certain extent, the tillers. This is because apart from being a multipurpose product, it is comfortable and farmers can actually ride on it. There is a space for such products which I am sure will be covered.

Is rapid urbanisation in the country and a growing demand for homes and offices affecting in any manner the growth of the agriculture industry?

‘Land’ has always been a constraint in India. For the last 20-30 years, I don’t think we added substantially to the agricultural land. But what the government is trying to do is how to increase the productivity of the same land.  Our productivity is much lower vis-à-vis the ones in even neighbouring countries like Pakistan. Like our sugarcane is not comparable with Brazil. So what we can do is with the existing land, we can enhance the productivity by increased mechanisation. That is one area where tractor manufacturers will be able to work. We also need to ensure that the groundwater availability is sufficient to produce additionally. Secondly, we are not able to utilise everything what we produce to avoid any wastages, etc. We have poor storage capacity. We have to take requisite steps to the crops are stored and utilised properly. Apart from keeping the land neat and clean, we also need to use the right kind of seeds, organic fertilisers, etc. We should also have to make sure that the land is also not misused.