Dip in tractor sales indicate further deepening of rural distress

Dip in tractor sales indicate further deepening of rural distress

In the financial year 2017-18 when tractor sale touched new heights, it was said by many of the NDA (viz. National Democratic Alliance) government supporters that rural demand has revived on account of adequate monsoon rainfall and higher minimum support prices for crops. Many economists and newspaper columnists also denied the existence of any rural distress.

An alternative perspective, however, was also presented by rural economists like Dr. Himanshu who teaches at the prestigious Jawaharlal Nehru University in Delhi. He said that farm loan waivers announced in states like Punjab, Uttar Pradesh and Maharashtra and lower interest rates helped in improving tractor sales. It is because of the loan waiver announced in some states that the erstwhile defaulting farmers (who suffered from debt burden) became eligible to get new formal loans for purchasing tractors. Since the volume of tractor sales was low in two consecutive crop years (viz. 2014-15 and 2015-16) when drought took place, their growth appeared robust in 2017-18 as a result of base effect.

Farm loan waivers mainly benefited the large farmers and those who have access to institutional credit (backed by adequate mortgage). Instead of just tractor sales, Dr. Himanshu asked for looking at the falling real wages in the rural areas, which led to demand deflation. In an article published in Livemint (dated 21st May, 2018), he mentioned that the real wages of agricultural workers on a year-on-year basis have fallen since December 2017, whereas real wages of non-agricultural workers have been declining since November 2017.  

In a recent opinion piece, which was published in Livemint (dated 15th August, 2019), Dr. Himanshu has shown (using the NSSO data) that the average consumption expenditure (at 2018 prices) in both rural and urban areas has fallen between 2014 and 2017-18.

The situation in our country is quite different from what existed during the financial year 2017-18. Latest available data of the Tractor and Mechanization Association–a non-government and not-for-profit organisation floated by the tractor industry–indicates that for 6 consecutive months (beginning from February 2019), domestic sales of tractors have recorded negative growth rates (on a year-on-year basis). For example, total domestic sales of tractors (in terms of volume) fell from 52,463 to 45,571 between July last year and July this year, which is a decline by 13.14 percent. Please check chart-1 for details.

It would, thus, be wrong to say that delayed monsoons affected rural demand in the recent months as has been stated by some media reports. Effective demand in rural areas has been declining since a long time.

Chart 1 Domestic sales of Indian manufactured tractors in terms of volume during various months in years 2018 and 2019
Source: Tractor and Mechanization Association, Monthly report for 2019, please click here to access
 
Tractor and Mechanization Association, Monthly report for 2018, please click here to access

Note: Total domestic sales has been calculated by subtracting 'Exports' from 'Total Sales (Including Exports)'
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Aside from domestic sales, exports of Indian manufactured tractors too have fallen. Chart-2 shows that for 6 consecutive months (starting from February 2019), growth rate of tractor exports from India was in negative territory (on a year-on-year basis). For example, total volume of tractor exports nosedived to 6,404 from 6,569 between July last year and July this year, which is a decline by 2.51 percent.

Chart 2 Export of Indian manufactured tractors in terms of volume during various months in years 2018 and 2019
Source: Tractor and Mechanization Association, Monthly report for 2019, please click here to access
 
Tractor and Mechanization Association, Monthly report for 2018, please click here to access

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If tractor is something that is bought by the rich, landed farmers in rural areas, then Parle-G biscuit is a product, which is consumed by the masses. Media reports indicate that due to subdued rural demand, which affected consumption of Parle-G biscuits (worth Rs. 5/- per packet only), the company could retrench 10,000 workers. Although part of the problem lies in hiking the rate of Goods and Services Tax (GST) on Parle-G biscuits from 12 percent to 18 percent (apart from increase in input costs), recent analyses suggest that stagnation in rural wages of the working classes is also responsible for slackening of the demand for certain fast moving consumer goods (FMCG products) including such low-priced biscuits.   

A recent news alert prepared by Inclusive Media for Change entitled Rural distress is real: Negative monthly growth of real wage rates witnessed in rural areas for 9 consecutive months, starting from November 2017 (dated 1st April, 2019) shows the following facts:

* The monthly rate of growth of real wage rate (on a year-on-year basis) of rural men in agricultural occupations (total 12 in nos.) was -1.19 percent in November 2017, -1.48 percent in December 2017, -3.37 percent in January 2018, -2.10 percent in February 2018, -2.07 percent in March 2018, -2.54 percent in April 2018, -2.64 percent in May 2018, -1.45 percent in June 2018 and -1.59 percent in July 2018. The real wage rate of rural men in farm occupations grew (on a year-on-year basis) by 2.31 percent in December, 2018.

* The monthly rate of growth of real wage rate (on a year-on-year basis) of rural men in non-farm occupations (total 13 in nos.) was -0.04 percent in November 2017, -0.61 percent in December 2017, -1.52 percent in January 2018, -0.76 percent in February 2018, -0.50 percent in March 2018, -1.06 percent in April 2018, -1.40 percent in May 2018, -1.32 percent in June 2018 and -0.71 percent in July 2018. The monthly rate of growth of real wage rate (on a year-on-year basis) of rural men in non-farm occupations was 2.15 percent in December, 2018.    

* The monthly rate of growth of real wage rate (on a year-on-year basis) of rural men in combined occupations (12 farm occupations + 13 non-farm occupations) was 2.22 percent in December, 2018.

* The average daily real wage rates for rural men in agricultural occupations (total 12 in numbers) grew by -1.76 percent in 2015-16 (viz. year-on-year growth), 1.49 percent in 2016-17, 1.65 percent in 2017-18 and a meagre 0.25 percent in 2018-19 (April-December, 2018).

* The average daily real wage rates for rural men in non-agricultural occupations (total 13 in numbers) exhibited a growth by 0.12 percent in 2015-16, -0.13 percent in 2016-17, 1.25 percent in 2017-18 and -0.01 percent in 2018-19 (April-December, 2018).

* The average daily real wage rates for rural men in combined occupations (12 agricultural occupations + 13 non-agricultural occupations) increased by -0.74 percent in 2015-16, 0.58 percent in 2016-17, 1.51 percent in 2017-18 and 0.09 percent in 2018-19 (April-December, 2018).

* The 12 agricultural occupations in rural areas considered for calculating the average daily farm wage rate in a year are Ploughing/ Tilling Workers; Sowing (including Planting/ Transplanting/ Weeding workers); Harvesting/ Winnowing/ Threshing workers; Picking Workers (including Tea, Cotton, Tobacco & other commercial crops); Horticulture Workers (including Nursery growers); Fishermen Inland; Fishermen Costal/ Deep Sea; Loggers and Wood Cutters; Animal husbandry workers: including Poultry workers, dairy workers & Herdsman; Packaging Labourers; General Agricultural Labourers including Watering & Irrigation workers etc.; and Plant protection workers (applying pesticides, treating seeds, etc.).

* The 13 non-agricultural occupations in rural areas considered for calculating the average daily non-farm wage rate in a year are Carpenter; Blacksmith; Mason; Weavers; Beedi Makers; Bamboo, cane basket weavers; Handicraft Workers; Plumbers; Electrician; Construction Workers (for roads, dams, industrial & project construction work & well diggers); LMV & Tractors drivers; Non-agricultural labourers (including porters, loaders); and Sweeping/ Cleaning Workers.

References

Tractor and Mechanization Association, Monthly report for 2019, please click here to access
 
Tractor and Mechanization Association, Monthly report for 2018, please click here to access
 
Rural distress is real: Negative monthly growth of real wage rates witnessed in rural areas for 9 consecutive months, starting from November 2017, News alert by Inclusive Media for Change dated 1 April, 2019, please click here to access 

For India Inc's sob story, Sitharaman has a sop story. But will it help? -Aunindyo Chakravarty, TheWire.in, 27 August, 2019, please click here to access
 
Slowdown in sale of biscuits and cookies: A blip in rural consumption or premiumisation of eatables? -Himadri Buch, Moneycontrol.com, 24 August, 2019, please click here to access

Why rural India can't afford to buy biscuits -Roshan Kishore, Hindustan Times, 23 August, 2019, please click here to access

Delayed monsoon, weak rural economy took toll on tractor sale, The New Indian Express, 16 August, 2019, please click here to access 
 
What happened to poverty during the first term of Modi? -Himanshu, Livemint.com, 15 August, 2019, please click here to access
 
FMCG companies red-flag gathering rural slowdown -Pranav Mukul & Anil Sasi, The Indian Express, 15 August, 2019, please click here to access 
 
BJP’s rural votes show talk of farm crisis misleading -SA Aiyar, The Times of India blog, 2 June, 2019, please click here to access

India bearing the cost of ignoring rural distress -Dr. Himanshu, Livemint.com, 21 May, 2018, please click here to access 

Tractor sales at all-time high -G Balachandar, The Hindu Business Line, 27 April, 2018, please click here to access 

Are rising tractor sales a sign of reviving demand in rural India? -Sayantan Bera, Livemint.com, 15 November, 2017, please click here to access 

Record tractor sales likely due to ample rains and farm loan waivers: Crisil -Sayantan Bera, Livemint.com, 2 August, 2017, please click here to access 
 
 
Image Courtesy: Tractor and Mechanization Association, http://www.tmaindia.in/



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