Farm mechanization to plough growth ahead: CII Agri Council

The farm equipment space has gone through a lot of churn in the last three-four years. A lot of investments have been made with the National Rural Employment Guarantee Act (NREGA), with higher and higher minimum support price (MSP), good rains and a secular increase in the cost of land across rural India.

Rohtash Mal, member of the CII Agriculture Council sees strong growth being cultivated in the farm equipment sector. Over the past three years, the growth rate has been in the range of 15-25%. Going forward, he expects it to touch 15-20%. Below is an edited transcript. Watch the accompanying video for more. Q: Do you see a secular improvement in demand in that space?
A: Yes. I do. Over the last 24-30 months, ever since NREGA took route and lesser and lesser labour became available on the farm, this sector has positively taken an upward stride. We have been seeing growth rates between 15% and 25% on an average in the last two or three years. As we speak, the ground conditions are about the same and similar growth rates continue to be seen not only in the tractor space but the farm implement space which is all the equipments that work along with tractors. Incidentally, the total recognized turnover of all these implements and machines that work with tractors is almost the same as tractors. So farm mechanization is an area whose time has come. Q: This 15 to 25% that you are speaking compares to what kind of trend say in the first half of the decade? NREGA is a right so it will continue to draw Rs 30,000-Rs 40,000 crore every year into the rural areas if it is correctly implemented. Do you expect this to get even better in the next three years?
A: If we are talking about 2009 being the watershed year, we had experienced growth rates of between 2-3% on an average in the years before, sometimes 5%. Clearly, something dramatic happened at that time and NREGA is a classic point. About two years ago, when we had a drought, we actually saw tractors sales moving northwards as the drought took effect. You would expect that drought would mean lower sales.
Going forward I do not see the ground conditions changing. NREGA is a right. We now have a right to Food Bill that has just been put into consideration in Parliament and between the two of them, I am not an economist but I see some negative fallout so to speak of this. There will be lesser and lesser labour available on the farm and therefore mechanization has to happen. We do have to produce the same amount of food or more food as the years go by. Q: Still you would expect it to go north of 25% as what I am asking?
A: Hesitant as I would be to make a comment like that, I think 25% is an explosive growth rate. So 30% would be even more explosive. I am not too sure about the numbers but I am really talking about an explosion in this area. Q: Given this good demand then we have seen, most of the companies which are listed in this space are taking a hit on operating margins on account of the increase in raw materials. Do you think the industry has the ability to pass on all these rising costs, thereby, protecting their margins in the coming year?
A: I believe so. In the face of this rising demand it will become easier to pass on these costs. More importantly there is a trend emerging in the next few months. I see prices of inputs to this space softening. The demand for steel is coming down; the demand for casting is coming down. The automobile space is itself now looking at single digit to low single digit growth rates.
Essentially, a lot of capacity is available in the component space in order to be able for this industry to take advantage of that softening. The industry may or may not do it. At the end of the day if you have to choose between rising demand in the face of a lower cost base you would take that route. I won