Chapter 6

A Study of Tractor Production and Sale in India

Thus far our analysis of agricultural Mechanisation was based on owners and users of machine.

In this chapter for tractors alone, we examine the pace of mechanisation based on data from

the suppliers side ie. manufacturers of tractors. The state of Indian agriculture over the last

two decades, particularly since accelerated liberalisation began in 1991, has been a matter of

concern to many scholars. Studies show that the growth of production and productivity in

agriculture has slowed down,1 affecting incomes and livelihoods from farming2 and resulting in

severe crises in certain regions and time periods.3

Indeed, the poor performance of the agricultural sector has led some scholars to argue that

there has been across-the-board income deflation in rural India (Patnaik 2003). Others have

argued that the period from 1991 to the present has been one of crisis, but not

“undifferentiated crisis — that is, of deceleration, a general absence of dynamism and even

retrogression across all classes, regions, crops and years (Ramachandran 2011).” Using a set of

indicators, including the growth of production, public and private investment and flows of

rural credit, three broad phases of agricultural growth can be distinguished at the all-India

1 Sen 2004, Chandrashekhar 2004, 2009, RBI, 2012.

2 Bhatia 2006, Singh 2009, Galab, Revathi, and Reddy 2009.
3 Patnaik 2003, Chand 2007, Walker 2008, Bhalla and Singh 2009, Reddy and Misra 2010, Ramachandran and
Rawal 2010, Ramachandran 2011.
201
level: a period of slow growth, 1991 to 1997/98, followed by a period of sharp decline, 1997/8

to 2003/4 and, a period of recovery after 2003/4 (ibid.)?

In this chapter, I argue that the mechanisation of Indian agriculture, as measured by growth in

production and sale of tractors, has continued, although not uniformly, over the last two

decades despite the slowdown in the agricultural sector. This focus on tractors is justified by

the fact that the Indian agricultural sector has a higher density of four-wheel tractors than

other developing countries of the world (Vyas 1982, Pingali 2007). India is also one of the

largest manufacturers of tractors in the world, and, more recently, an exporter of tractors as

well.

This chapter is divided in four sections. Section 6.1 discusses briefly major developments in

tractor industry between 1961 and 1990. Section 6.2 discusses trends in aggregate production,

sale and export of tractors in India between 1989 and 2009. Section 6.3 examines some factors

influencing domestic sales of tractors, and Section 6.4 discusses trends in State-wise sales of

tractors and changes in regional concentration of tractor sales.

6.1 Brief Account of Tractor industry in India: 1961-1990

The production of tractor started in India in 1961 by Eicher Good Earth Limited. The first

tractor with fully indigenous technology ‘Swaraj Tractor’ was produced in 1974 by Punjab

Tractor Limited, based on the model developed by Central Mechanical Engineering Institute,

Durgapur. Since then, India has become one of the leading manufacturers of tractors in the

4 According to Ramachandran (2011), in the 1997/98 to 2003/4 period “Many things came together — the lagged
effect of a decline in public investment, the withdrawal of state support to agriculture, the crisis in rural credit, the
effects of the new WTO-driven trade regime, falling international product prices, and drought — to make this the
worst period for rural India under liberalisation.”
202
world5. In 2009-10, India produced 3.83 lakh tractors. The Indian tractor industry has gone

through different phases of growth.6

1961-1971

At Independence, the demand for tractors was low and met through imports. During 1961-

1966 five new manufacturing units were set up. These were Eicher Good Earths Limited

(1961), Tractors and Farm Equipments Limited (1961), Gujarat Tractors Limited (1963),

Escort Tractors Limited (1964) and Mahindra and Mahindra Limited (1965). There were 2997

tractors imported in 1961-62 which came down to 1989 in 1965-66. With the advent of green

revolution the use of tractors in agriculture grew and demand increased rapidly. This increased

demand was met mainly by import of tractors. The import of tractors increased to 16031 in

1970- 71. The production of tractors increased from 880 in 1961-62 to 20,099 in 1970-71.

1971- 1981

After 1972, the Government of India tried to expand domestic production and thus to make

the country self reliant in the production of tractors. Consequently, there was a decline in the

import of tractors. In 1980-81 only 31 tractors were imported. During the 1970’s Escorts India

limited, HMT Limited (both 1971), Punjab Tractors Limited (1974), Kirloskar Tractors

Limited, Pittee Tractors Limited (both 1974) and Harsha Tractors Limited started

5 According to the annual report 2010-11 of Department of Heavy Industry, Ministry of Heavy Industries and
Public Enterprises, Gol “the Indian tractor industry is largest in the world (excluding sub 20 HP belt driven
tractors used in China), accounting for one third of global production”.

6 For detailed discussion on earlier phases of growth of the Indian tractor Industry, see Aurora and Morehouse
1972, Bhatt 1978, Morehouse 1980, Patel and Gandhi 1996, and Singh 1998, 1998a, 1998b and 2000, Shahare et.
al. 2003.
203
manufacturing tractors. The production of tractors in India rose to 71024 by the end of 1980

81.

1981-1990

The import of tractors stopped completely after 1986-87. In 1986-87, only 10 tractors were

imported. India started export of tractors in 1990-91. The annual production of tractors

crossed 1 lakh in 1988-89. During the 1980s Auto Tractors Limited (1981), Haryana Tractors

Limited (1983), VST Tillers and Tractors Limited (1983), United Auto Tractors Limited

(1986), and Asian Tractors Limited (1989) started production.

6.2 Growth of Tractor Production Sales and Export in Post-Liberalisation Period

6.2.1 Production

Between 1989-90 and 2009-10, there was a three-fold increase in tractor production, from

125,000 to 383,000 (Appendix table 6A.1), equivalent to an annual rate of growth of 4.3 per

cent. However, there have been large year-to-year fluctuations in growth. There were three

instances where growth of production of tractors was negative for two or more successive

years. The first such instance was during 1992-93 and 1993-94, that is, just after liberalisation

of the Indian economy in 1991. There was a short recession in the tractor industry as

production dipped from 166,000 in 1991-92 to 147,000 in 1992-93, and, further to 139,000 in

1993-94. A second phase of negative growth was from 2000-01 to 2003-04. In 2003-04 the

production of tractors fell below the level of 1995-96. The slowdown began in 1997-98 with

negative or low growth rates up to 2000, followed by large negative growth rates during 2001-

02 and 2002-03. Production increased rapidly from 2004-05 and output crossed the 300,000

204
mark in 2006-07. There was another dip in production in 2007-08 and 2008-09 followed by a

big increase in 2009-10.

The phases of growth in tractor production closely follow the three post-1991 phases of

growth of agricultural production and investment as identified by Ramachandran (2011),

namely 1990-91 to 1997-98, 1997-98 to 2003-04, and after 2003-04. The phase 1997-98 to

2003-04 witnessed a particularly sharp fall in growth rate of production and yield of food

grains, investment and input use. There was a partial recovery in the period after 2003-04.

As shown in Table 6.1, in the first phase of 1989-90 to 1997-98, tractor production grew at 9.2

per cent per annum. In the second phase, growth of tractor production declined at -7.7 per

cent per annum, and then recovered rapidly, growing at a rate of 11 per cent between 2003-4

and 2009-10.

Table 6.1 Growth rate ofproduction oftractors, 1989-90 to 2009-10

Period Annual compound rate of growth (CGR)
1989/90-1997/98 9.2
1997/98-2003/04 -7.7
2003/04-2009/10 11
1989/90-2009/10 4.3
Source: Monthly Abstracts of Statistics, various issues
Note: Growth rate estimated from die semi-logaridimic trend line (instantaneous growth rate): Log y— log pi +
p2t. Where y = production of tractors, t = time, Pi and p2 are intercept and slope respectively. p2is interpreted as
the percentage change in production due to one unit change in time. Compound growth rate (r) was calculated
from the semi-logarithmic equation using the relationship p2=log (1+r). So CGR (r) = antilog (P2)-l.

It may be mentioned here that the period of recovery of agricultural growth, 2003-04 onwards,

is also a period when India’s industrial output, particularly manufacturing output, grew at a

rapid pace. At current prices, industrial GDP and GDP from manufacturing sector grew at a

rate of 15 per cent per annum between 2003-04 and 2009-10 (RBI Handbook of Statistics

205
2012). During the same period, the index of industrial production (IIP) increased at a rate of

around 9 per cent per annum (CSO 2011). After a slowdown during the 9th plan (1997-98 to

2001-02), when industrial GDP grew at 4.4 percent per annum, industry rejuvenated during

the 10th plan (2002-03 to 2005-06), when industrial GDP grew at 8 per cent per annum

(Acharya 2007). Hence the period of recovery of tractor production also coincides with period

of revival of industrial growth in India.

It should also be pointed out that automobile industry in India (of which tractors are a small

part) has grown spectacularly in the last two decades. After an initial recession between 1992

and 1994, production of automobiles in general grew at 7 per cent during the 1990s and at 11

per cent during the 2000’s (barring 2007-08). Global auto companies have entered the Indian

market. This is so even in the tractor industry (New Holland in 1998 and John Deere in 2000).

Domestic Sale of Tractors

Growth in tractor sales followed a similar trend: 8.3 per cent annual growth between 1990 and

1997, followed by a decline of -7.5 per cent per annum between 1997 and 2003 and recovery

at 10.5 per cent after 2003-04 (Table 6.2 and Appendix Table 6A.1). The sharp fall in sales

between 1997-98 and 2002-03, of around 40 percent resulted in an inventory pile up of over

65000 units at the end of 2002-03, almost twice what the industry regarded as an acceptable

level (EPWRF 2003). Strategies followed by manufacturers included cutbacks in production,

and search for export markets (ibid.). As discussed below, from the beginning of the 2000s,

exports of tractors expanded rapidly.

206
 Table 6.2 Growth rate of domestic sale of tractors, 1989-90 to 2009-10
Period Annual compound growth rate (CGR)
1989/90-1997/98 8.3
1997/98-2003/04 -7.5
2003/04- 2009/10 10.5
1989/90-2009/10 4.4
Source: Monthly Abstracts of Statistics, various issues. Note: See note in table 1.

Export of Tractors

India started exporting tractors in 1987-88, and there has been a consistent increase in exports

since then. Over two decades, 1989-90 to 2009-10, exports grew at a compound rate of 28.5

per cent (Table 6.3). The growth rate was above 30 per cent during the first two phases but

declined to 19 per cent after 2003-04. The latter was mainly due to a big fall in exports in the

financial year 2009-10.

In 2009-10, India exported 34984 tractors (Appendix Table 6A.1). Exports rose in absolute

terms and as a percentage of total sales. Starting from less than one per cent in 1987-88,

India’s export of tractors as a percentage of sales increased to nearly 14 percent in 2008-09.

Thus, external demand became an important factor in keeping the tractor industry buoyant in

the late 2000s. To boost India’s export potentiality of tractors a four per cent duty refund on

export of tractors was announced under the Duty Entitlement Passbook scheme in 2009.7

Under this scheme basic import duty on import of items for the manufacture of products

meant for export is refunded to manufacturers.

7 See Press Trust of India, “Tractor Exporters to get 4% Duty Refund”, Business Standard, October 21, 2009.

207
 Table 6.3 Growth rate ofexport oftractors, 1989-90 to 2009-10
Period Annual compound growth rate (CGR)
1989/90-1997/98 41.3
1997/98-2003/04 34
2003/04-2009/10 19
1989/90-2009/10 28.5
Source: Monthly Abstracts of Statistics, various issues. Note: See note in table 1.

Growth in volume has been accompanied by a gradual widening of the international market

for Indian tractors (Patel and Gandhi 1996). In 1987-88, tractors were exported to seven

countries, the number rose to 26 countries in 1993-94 (ibid.). In 2009, India exported tractors

to as many as 98 countries though the USA, Turkey, Nepal, Bangladesh and Sri Lanka

constituted the major destinations of India’s tractor exports.8 In 2009, the share of these five

countries in total quantity exported and total value of exports was 68.5 percent and 59.2 per

cent respectively.

The trends in production, domestic sales, exports and total sales of tractors are shown in

Figure 6.1.

8 See Mail Today Bureau, “India Still Tiny Player in Auto Export Market”, India Today, October 5, 2010.

208
Figure 6.1, Production, sales (domestic), export and sales (total) of tractors in India, 1989-90 to 2009-10
o oc n oo co n oo co n oo co n oo con
Quannty (000 numbers)

-Production
-Total sale
Domestic sale
•Number exported
1989 -90

1991 -92
1992 -93
1993 -94

2003 -04
1994 -95
1995 -96
1996 -97
1997 -98
1998 -99

2002 -03

2005 -06

2007 -08
2008 -09
1999 -00

2001 -02

2004 -05

2006 -07

2009 -10
1990 -91

2000 -01

Source: Monthly Abstract of Statistics, CSO, various issues; Annual Report, Department of Agriculture and
Cooperation, Ministry of Agriculture, Government of India, various years; UN comtrade database.

A few things clearly come out from the above discussion. Barring the period of 1997-98 to

2002-03 there was more or less steady increase in production and sales of tractors. The phases

of growth of tractor industry have correspondence with phases of growth of agriculture. The

period rapid growth of tractor industry since 2003-04 overlaps pardy with the upward surge in

industrial production in general in 2000s and the spectacular growth of Indian automotive

industry after liberalisation. This suggests that apart from performance of agricultural sector,

general industrial environment and internal dynamics of the industry have a role to play in

determining the course of the tractor industry'. Lastly, external demand for tractors of Indian

make has become an important source for tractor sales in 2000s.

209
 6.3 AnAnalysis of Factors affecting aggregate sales Tractors in India

We have studied the factors affecting domestic sale of tractors in India in post liberalisation

period. In literature it is found that increase in farm output, steady availability of finance,

higher MSP (minimum support price) for major crops, normal monsoon, investment in farm

sector influence the sales of tractor. Shortage of farm labourers in rural India due to the

national rural employment guarantee act (MGNREGA) has also been cited for increasing

demand for tractors in farm operations and hence contributing to higher growth in sales of

tractors in recent years. (EPWRF 2003, CRISIL 2011)

Of these we have studied the effect of growth of long term credit and public investment in
detail.

Long term credit

Formal credit plays a major role in financing of purchase of machinery. According to Pingali

(2004), 95 percent of machine in India are purchased through loans from formal sector banks.

In some studies the falling share of agricultural credit in total outstanding credit of banks and

higher interest rate on tractors were held partially responsible for slump in tractor industry

during 1997-98 to 2003-04 (EPWRF 2003). But according to Ramachandran (2011), even

during this period of decline in rural credit big farmers obtained very large formal sector loans

and very high proportion of formal sector loans. We have taken direct long term credit for

agriculture and allied activities from scheduled commercial banks as proxy for long term credit

advanced to agriculture.

210
Figure 6.2, Long term (direct) creditfor agriculturefrom Scheduled commercial banks (at currentprices)
R s. billion

s
U
co
U
CQ
99
93

96
94

98
91
92

10
95

97

04
05
06
03

07
08
09
1989-90

2001-02
2000-01
1999-2000
1990 -
1991 -
1992 -
1993 -
1994 -
1995 -
1996 -
1997 -
1998 -

2002 -
2003 -
2004 -
2005 -
2006 -
2007 -
2008 -
2009 -
O
C8

Source-. Handbook of Statistics on Indian Economy (2012)

Public investment

Investment in machinery such as tractors and pump constitute one major item of private

investment in agriculture. The relation between public and private investment has been a

subject of much debate among scholars. We have taken gross capital formation in agriculture

(GCF) in public sector as a measure of public investment in agriculture.

211
Figure 6.3, Public investment (GCF) in agriculture (at current prices)
Rs. billion

PUBINV

99
93
91

94

97
96
92

95

06
98

08

10
03

07

09
04
05
1989-90

2000-01
1999-2000

2001-02
1990 -
1991 -
1992 -
1993 -
1994 -
1995 -
1996 -
1997 -
1998 -

2002 -
2003 -
2004 -
2005 -
2006 -
2007 -
2008 -
2009 -
n

Source-. National Accounts Statistics (various years)

Figures 6.2 and 6.3 clearly show a rise in long term credit as well as in public investment after

2002-03, following a long period of stagnation (at current prices). The periodic growth rates

are shown in the following Table (Table 6.4).

Table 6.4 Growth rate (CGR) ofproduction of tractors, public investment in agriculture (at current prices) and direct long
term credit for agriculture from scheduled commercial banks (at current prices) over different periods

Direct long term credit for

Domestic sale of Public investment in agriculture from commercial
Period tractors agriculture (GCF) banks
1990/91- 1997/98 8.5 12.3 14
1997/98- 2003/04 -7.5 9.3 10.2
2003/04- 2009/10 10.5 18 30
1990/91-2009/10 4.2 12.7 20
Source-. Annual report of Department of Agriculture and Cooperation, Ministry of agriculture, various years,
Handbook of Statistics on Indian Economy, 2011-12

We tested the stationarity (unit root test) of three series- domestic sales of tractors, long term

credit for agriculture (LTCSCB) and public investment (Gross capital formation) in agriculture
212
(PUBINV) using augmented dickey fuller test (ADF)9. In all three cases original series is found

to be non stationary. Hence we have taken the first difference of these series. The first

difference of domestic sales is found to be stationary (no stochastic trend (no unit root) and

no deterministic trend (no trend)). The first difference of PUBINV and LTCSCB are found to

have no stochastic trend (i.e. no unit root) but have deterministic trend. So to make these two

series stationary (i.e. to remove the trend element) we have regressed them (first difference of

PUBINV and LTCSCB) on time and collected the residuals. In other words we have estimated

the following equations-

APUBINV = fa + fat (1)

and

ALTCSCBt = fa + fat (2)

The residuals of the first and second equations are termed as UApuBlNVt and UALTCSCBt

respectively (results of ADF test for these two series are reported in the appendix). Then to

understand the relationship among growth in domestic sales of tractors and other variables we

have estimated the following regression equation by OLS technique-

ASAJLES,— ft + ft U&puBiNvt+ ft UALTcscBt + ft ASy4LES/t+ Ut (3)

Where

ASALESt = Change in domestic sale of tractors (no. 000) at time t.

VAPUBlNVt- Estimated residuals from the regression of APUBINV, on time t.

9 For detailed discussion on the steps involved in augmented Dickey- Fuller test see Mukhopadhyay and Sarkar
(2001) and Dua and Misra (1999).
213
U&LTCSCBt= Estimated residuals ftom regression of ALTCSCBt on time t.

ASALES't-1 = Change in sales with one period lag (000 nos.).

The expected signs of all three independent variables are positive. The results of the regression
are reported below (Table 6.5).

Table 6.5 Regression results of determinants of domestic sale of tractors in India (dependent variable— ASALESt)
Independent
variables Coefficient Standard error t- statistic P>|t|
UpUBINVt 0.76 0.33 2.33 0.036
ULTCSCBt 0.21 0.21 1.73 0.105
ASALESt-1 0.31 0.18 1.75 0.103
Constant 10.37 5.3 1.95 0.071
R2 0.62
Adjusted R2 0.53
Prob>F 0.003
VIF 1.23
Ljung Box Q1 5.65
Prob>Chi2 0.58
Breusch- Godfrey1 6.75
Prob>Chi2 0.15
N 18
Note-. 1. The regression equation contains lagged value of the dependent variable ASALESt in the
right hand side as explanatory variable. Hence Durbin- Watson test cannot be used in this case. As
an alternative we have used Ljung- Box Q test and Breusch- Godfrey test. In case of Ljung Box test
null hypothesis is Ho: Data are independently distributed (i.e. correlations in the population from
which sample is taken is zero so that any observed correlations in the data result from randomness of
the sampling process). Hi: Data are not independently distributed. In case of Breusch- Godfrey test
Ho: There is no serial auto-correlation. In present case we could not reject the null hypothesis and in
both the tests hence we conclude there is no autocorrelation in the error term of the regression.

The regression results show growth of tractor sales has positive relation with growth in long

term credit form agriculture and public investment in agriculture (after de-trending their first

difference). Increase is supply of long term credit leads to increase in sale. This indicates long

term credit from commercial banks has a critical role in domestic sales of tractors. Again,

214
higher public investment in agriculture leads to higher sales of tractor. This emphasises

complementary relationship between public and private investment in agriculture.

6.4 Recent Trends in statewise sale of tractors

We have studied State-wise density of tractors per thousand hectares of net sown area in

Chapter 3. We have seen there is great disparity in the density of number of tractors per

thousand hectare of net sown area across States with Punjab and Haryana being in class apart.

In general States in Northern India have higher number of tractors per thousand hectare of

net sown area compared to other parts of the country.

Although there exists huge regional disparity in the present status of the level of tractorisation,

recent data on tractor sales at the State level show that growth has been higher in States where

tractor penetration in agriculture was low initially. Thus during the last two decades, western,

eastern and southern India have emerged as the major market for tractors. In the more heavily

mechanised regions of north India, the growth rate of sale of tractors was sluggish or even

negative: 2.5 per cent in Uttar Pradesh, -2.6 per cent in Punjab and 0.2 per cent in Haryana

(Table 6.6).10

10 Viability of investment and under utilisation of tractors in States like Punjab and Haryana has been discussed in
various forums. According to a study by Punjab Agricultural University (PAU) there were 410,000 tractors in
Punjab which is much higher than what the State actually needs 150,000 (EPWRF 2003). A recent study shows
that average use of tractors per annum in Punjab is 751.26 hours which is much below the standard norm of 1000
hours per year and nearly 70 percent of farmers in Punjab use tractor for 500 hours even less (Singh 2010).
Leading manufacturers of tractor also feel that the market for their product in these States has saturated and as
against this they need to focus on other regions like South, East and West where the level of mechanisation is low
(Indian Express 2008).
215
Table 6.6 Growth rate ofsale oftractors, 1990-91 to 2009-10, by State

Annual compound Growth rate

States (CGR)
Andhra Pradesh 9.9
Assam 10.2
Bihar 9.2
Gujarat 4-.4-
Haryana 0.2
Himachal Pradesh 14.5
Jammu & Kashmir 9.9
Karnataka 8.2
Kerala -1.6
Maharashtra 6.4
Madhya Pradesh 4
Orissa 14.3
Punjab -2.6
Rajasthan 4.8
Tamil Nadu 5.3
Uttar Pradesh 2.5
West Bengal 11.2
Sounr. Computed from Agricultural Engineering Data book, 2010, CIAE, Bhopal
Note-. See note in table 1

The differential pattern of growth in sales with faster growth in the laggard States has reduced

the regional concentration of tractor sales over time. To illustrate, the share of the top five

States in total tractors sales was 55 per cent during the period 2004-05 to 2009-10 as compared

to 70 per cent during the period 1990-91 to 1994-95. The value of the Hirschman-Herfindahl

index (HHI) declined, indicating diversification in state-wise sales of tractors over time (Table

6.7).

Further, there has also been a change in the composition of the top five States. While Uttar

Pradesh, Punjab, Haryana, Madhya Pradesh and Rajasthan were the top five States in the early

216
1990s (1990-91 to 1994-95), at the end of the 2000s Punjab, Haryana and Madhya Pradesh had

been replaced by Andhra Pradesh, Maharashtra and Gujarat".

It may be noted that between 2000-01 and 2009-10 Gujarat and Maharashtra topped all Indian

States in terms of performance of farm sector (ASSOCHAM 2011). Growth rate of real GDP

from agriculture was 11 per cent for Gujarat and 10.5 percent in Maharashtra. Investment in

agriculture, improvement of irrigation facilities, expansion of area under cultivation, use of

improved technological innovation, availability of power are some of the reasons cited for

better performance of these two States12. Andhra Pradesh and Madhya Pradesh are also among

few States which clocked over 5 per cent growth rate in agriculture in 2000’s. Evidently these

are some of the factors contributing to rapid growth of tractor sales in these States.

Apart from that some of the growing demand for tractors is due to increase in use of tractors

in construction work. According to Escorts, the company has witnessed nearly 70 per cent

mcrease in demand for tractors from infrastructure sectors in States like Maharashtra and

Gujarat (Mukherjee and Modi 2011). In Bihar, tractor sales have tripled in recent years due to

an infrastructure boom {ibid). While no segment wise data is available on purchase of tractors,

11 If we follow Bhalla and Singh’s (2009) convention of categorising States into four regions- North West region,
Central Region, Eastern Region and Southern Region then among five States which had come up as major
market for tractor sales during this period four- Rajasthan, Maharashtra, Gujarat and Madhya Pradesh fall in the
central region and the other one- Andhra Pradesh falls in Southern Region. The authors have shown that during
post liberalisation era (1990-93 to 2003-06) central region have shown relatively better agricultural performance
than compared to other regions. Output and yield growth rate were higher in these States compared to other
parts of the country. The growth rate of value of output and yield per hectare between 1990-93 and 2003-06 in
the central region was 3.2 and 2.6 respectively while the average output yield for the country as a whole has
grown at the rates of 1.7 and 1.5. Looking at the growth rates value of output individual States comprising central
region Rajasthan, Maharashtra, Gujarat and Madhya Pradesh were 3.2, 2.1, 5.3 and 2.5 percent respectively.
Growth rate of yield in these States were 2.3, 2.2, 4.6 and 1.9 respectively. In Andhra Pradesh output and yield
grew at the rate of 1.76 and 2.17 respectively.

12 See the Hindu Business Line July 12, 2011.

217
according to Tractor Manufacturers Association, around 10-12 percent of tractors sold in the

domestic market is used in the construction sector {ibid).

Table 6.7 Share of States in the sale of tractors over different periods
1990-91 to 1994- 1995-96 to 1999- 2000-01 to 2004- 2005-06 to 2009-
States 95 00 05 10
Andhra Pradesh 4.8 5.4 7.2 11.5
Assam 0.2 0.2 0.3 0.6
Bihar 2.9 4.2 7.2 5.5
Gujarat 6.9 8.4 6.1 8.0
Haryana 12.3 9.1 6.6 7.2
Himachal Pradesh 0.1 0.2 0.3 0.3
Jammu &
Kashmir 0.3 0.2 0.6 0.4
Karnataka 3.6 3.9 5.1 6.7
Kerala 0.4 0.3 0.2 0.3
Madhya Pradesh 9.2 12.0 14.1 8.0
Maharashtra 5.1 6.8 4.6 8.8
Orissa 0.6 0.7 1.9 2.1
Punjab 16.9 11.9 8.1 6.2
Rajasthan 8.5 9.7 8.5 9.8
Tamil Nadu 4.4 4.3 4.0 5.7
Uttar Pradesh 23.2 21.5 24.1 17.0
West Bengal 0.7 1.0 1.3 2.0
Total 100.0 100.0 100.0 100.0
Measures of regional concentration
Share of top 5
States 70 64.2 62 55
HHI 0.12 0.11 0.1 0.07
Source-. Computed from Agricultural Engineering Data book, 2010, CIAE, Bhopal
Note-. HHI is defined as Tf'LiSi2. Here Si is defined as share of the ith State and N is the number of
States. The value of HHI ranges from 1/N to 1. The higher the value of HHI, the higher is the
concentration.

It should be noted that while there has been increase in sales of tractors and convergence of

sales across States there remain wide State-wise variations in the use of tractor. We report

below a section of results on use of tractors in different agro-economic regions from a large

scale survey by NABARD on various economic aspects of tractors in India conducted in 2001.

218
Table 6.8 shows average animal use of tractors across different regions in the country in 2001.

If we assume 1000 hours per annum as a standard norm for use of tractors per annum, then

on an average only 59.5 per cent of its total annual capacity is used in the country. There exists

wide variation in capacity utilisation across regions. Capacity utilisation was highest in

Karnataka Plateau Division (98.2) percent) and lowest in Punjab Plains Division (Arid Zone)

(38.3 per cent) (Table 6.8).

Table 6.8 Annual hourly use of tractors on own farm and for custom hiring
Tractor use (in hours) Total use of tractor time as
Own Custom percentage of standard norm
Agro-climatic Division Farm Hiring Total of 1000 hours
Trans Gangetic Plains Region 469 85 554 55.4
Punjab Plains Division (Arid Zone) 317 66 383 38.3
Punjab Plains Division (Semi-arid Zone) 631 106 737 73.7
Middle Gangetic Plains Region 396 112 508 50.8
Bihar Plains Division 396 112 508 50.8
Western Dry Region 36 494 530 53
Rajasthan Dry Division 36 494 530 53
Central Plateau and Hills Region 333 274 608 60.8
Eastern Plains and Hills Division 245 433 678 67.8
Northern Plains Division 443 178 621 62.1
Central Plateau and Hills Division 413 167 580 58
Vindhya Hills and Plateau Division 248 298 546 54.6
Southern Plateau and Hills Region 721 261 982 98.2
Karnataka Plateau Division 721 261 982 98.2
Eastern Plateau and Hills Region 228 128 356 35.6
Bihar Chhotanagpur Plateau Division 228 128 356 35.6
Western Plateau and Hills Region 419 333 752 75.2
Malwa Plateau Division 419 333 752 75.2
West Coast Plains and Ghats Region 400 112 512 51.2
Mysore Coastal and Hills Division 400 112 512 51.2
Gujarat Plains and Hills Region 344 218 562 56.2
Gujarat Plains and Hills Division 518 126 644 64.4
Western Dry Division 363 247 610 61
Saurashtra Plains Division 215 261 476 47.6
All Regions 383 212 595 59.5
Source. Reproduced from Kishor and Mor (2001)

219
Thus major trends from State level data on tractor sales are as follows. In spite of the

established and widely discussed fact of regional concentration of the level of tractorisation

there has been an increasing diversification in State-wise sales in last two decades. Southern

and western States have witnessed rapid growth in tractor sales. Particularly, States like Andhra

Pradesh, Maharashtra and Gujarat have come up as major hub of tractor sales recently.

However there is also an indication of rise in non-agricultural use of tractors and severe under­

utilisation of capacity of tractors in certain parts of the country.

6.5 CONCLUSION

This chapter has examined the pace and pattern of tractorisation in Indian agriculture in the

period from 1989 to 2009, using data on the production and sales of tractors. It would have

been useful to complement this analysis with data from buyers and farmers. Unfortunately,

data on expenditure on agricultural machinery in different rounds of AIDIS are at an aggregate

level. We are not able to separate expenditure on tractors from expenditure on other items of

machinery.

Although, tractor production in India began only in 1961, India today is one of the leading

manufacturers of tractors and exports tractors to many countries of the world. Overall, there

was a three-fold increase in tractor production and sales over the last two decades, from 1989-

90 and 2009-10. The growth was, however, not uniform over the years and there were at least

three periods of negative growth for two or more successive years. The first of these was just

after liberalisation in 1991 and the second was in the late 1990s and early 2000s. There was a

dip in production and sales in the early 1990s and a much larger fall during 2000-2003, which

was also a period of a serious agricultural crisis. There was another small decline during 2007-
220
09. Broadly, the growth of production of tractors followed three phases: a phase of high

growth from 1989-90 to 1997-98, followed by a phase of recession between 1998-99 and

2003-04, and finally, a recovery phase from 2004-05 to 2009-10. These three phases of growth

correspond roughly to three broad phases of growth and deceleration of the agrarian economy

(Ramachandran 2011). The last phase of recovery was also a period of rapid growth in the

industrial sector and in the automobile industry in particular.

While there are many factors affecting the growth of tractor sales, we examined two in detail,

and found that both changes in long term (direct) credit for agriculture from scheduled

commercial banks, and in public investment had a positive and significant effect on changes in

(growth of) tractor sales.

Further, in the 2000s, exports grew rapidly and export demand clearly boosted domestic
manufacturing.

An analysis of sales across States showed that growth was more rapid in States with an initially

lower level of tractorisation, resulting in a decline in the concentration of sales over time. In

particular, growth was slow or even negative in Punjab, Haryana and Uttar Pradesh, while

growth was high in States from the south, east and west of India. In the early 1990s (1990-91

to 1994-95), Uttar Pradesh, Punjab, Haryana, Madhya Pradesh and Rajasthan were the top five

States in terms of average sales of tractors per year, but by the late 2000s (2004-05 to 2009-10),

Punjab, Haryana and Madhya Pradesh had been replaced by Andhra Pradesh, Maharashtra and

Gujarat.

221
In conclusion, these data indicate that domestic production and sales of tractors grew at a

rapid pace for most of the 1990s and 2000s, with a few exceptions. These data do not support

the view of undifferentiated rural income deflation after 1991. On the contrary, they indicate

continued and sizable capital accumulation (by purchase of tractors) by some sections and in

certain regions in the countryside over the last two decades.

222
 A ppendix 6A
Table 6A.1 Production, sales and export of tractors
Annual percentage Annual percentage Annual
Production# (000 Annual percentage Total sale (000 change in total Domestic sale change in Quantity percentage Export as percentage
Year numbers) change in production numbers)________ sales______ (000 numbers) domestic sales exported change in export_____ o f total sale
1989- 90 125 122 122 360 0.29
1990- 91 143 14.4 140 14.75 139 14.56 371 3.06 0.27
1991- 92 166 16.08 151 7.86 150 7.74 325 -12.40 0.22
1992- 93 147 -11.45 144 -4.64 143 -4.51 845 160.00 0.59
1993- 94 139 -5.44 139 -3.47 138 -3.94 1041 23.20 0.75
1994- 95 158 13.67 165 18.71 163 18.02 2163 107.78 1.31
1995- 96 202 27.85 191 15.76 188 15.74 3041 40.59 1.59
1996- 97 245 21.29 221 15.71 217 15.32 3811 25.32 1.72
1997- 98 278 13.47 251 •13.57 248 14.36 2890 -24.17 1.15
1998- 99 273 - 1.8 262 4.38 259 4.38 3136 8.51 1.2
1999- 00 280 2.56 273 4.20 270 4.34 2746 -12.44 1.01

2000- 01 285 1.79 255 -6.59 250 -7.56 4827 75.78 I. 89

2001-02 226 -20.7 225 -11.76 220 - 12.12 5587 15.74 2.48
2002- 03 192 -15.04 173 -23.11 162 -26.07 10682 91.19 6.17
2003- 04 179 -6.77 190 9.83 175 7.64 15515 45.24 8.15
2004- 05 242 35.2 248 30.53 231 32.32 16216 4.52 6.55
2005- 06 254 4.96 296 19.35 268 15.79 28247 74.19 9.54
2006- 07 311 22.44 353 19.26 324 21.14 28318 0.25 8.03
2007- 08 304 -2.25 347 -1.70 308 -5.04 38407 35.63 II. 08
2008- 09 303 -0.33 343 -1.15 295 -4.09 47344 23.27 13.81
2009- 10 383 26.4 394 14.87 359 21.44 34984 -26.11 8.88
Source. Monthly Abstract o f Statistics, CSO, various issues, Annual Reports, Ministry of Agriculture, Gol and UN comtrade database
Note. These are estimates of'com plete tractors ’ only, produced in die country as provided by CSO (and also Economic Survey, FM, Gol). However estimates of tractor production
as provided by different manufacturer associations such as Tractor Manufacturers Association (TMA), Automotive Component Manufacturers Association (ACMA) etc. are little
different. Specifically estimates o f tractor production as provided by manufacturers associations in die period after 2002-03 are higher than CSO estimates. So there are differences in
periodic growth rates of production o f tractors. But all these databases show die same broad trends in tractor production.
223
 Table 6A.2 Augmented Dickey fuller test for unit roott (Ayt — a + yyt + Ayt_j + ut)

1% 5% Mackinnon
Value of test critical critical 10% critical approximate p-value
Variable statistic Z(t) value value value for Z(t)

ASALESt -2.85* 0.051

II _...... _ -3.75 -3 -2.63
PuEiiW t -3.008** 0.034
^LTCSCBt -3.7** 0.004
Note: + One lag was considered as higher lags were not significant and trend component is not
included as variables were already de-trended *,** implies significant at 10 per cent and 5 per cent
level respectively

Table 6A.3 Augmented Dickey fuller test for unit root+ [A2SALESt = a + y ASALES£ +
A 2SALESt_1 + ut)
independent
variables Coefficient t-value p>iti
ASALESt -0.74 -2.85 0.013
A* SALESt-1 0.44 1.66 0.118
Constant 12.13 1.68 0.115
N 17
Note: See note 6A.2

Table 6A.4 Augmented Dickey fuller test for unit root+ (AUpuBjNyt — a 4- yUpuBiNVt +
^UpUBINVt-1 + ut)
independent
variables Coefficient t-value P>|t|

-1.26 -3.01 0.009

&UpUBINVt-l 0.22 0.58 0.574
Constant -0.54 -0.12 0.9
N 17
Note: See note 6A.2

Table 6A.5 Augmented Dickey fuller test for unit root+ (A ULTCSCBt — a + yULTCSCBt +
kUlTCSCBt-1 + ut)
independent
variables Coefficient t-value P>|t|
AyLTCSCBt -1.23 -3.68 0.002
hUiTCSCBt-1 0.36 1.46 0.165
Constant -2 -0.17 0.867
N 17
Note: See note 6A.2

224