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According To Escorts Kubota Group, A Rate Hike By The RBI Is Unlikely To Affect Tractor Demand.

The impact of the RBI interest rate increase will be felt across the economy. However, Bharat Madan, CFO of Escorts Kubota Ltd, believes that the RBI's rate hike will have little impact on tractor demand, but it may falter due to rising inflation.

According To Escorts Kubota Group, A Rate Hike By The RBI Is Unlikely To Affect Tractor Demand.

The impact of the RBI interest rate increase will be felt across the economy. However, Bharat Madan, CFO of Escorts Kubota Ltd, believes that the RBI's rate hike will have little impact on tractor demand, but it may falter due to rising inflation.

"There is a minor effect on demand... We do not believe that interest rate increases will have a significant impact on demand "Madan stated this to PTI in response to a question about how the RBI's interest rate hike might affect tractor sales. Kubota is a Japanese multinational corporation best known for producing farm equipment such as tractors.

The Reserve Bank of India's (RBI) rate-setting panel raised the repo rate—the rate at which the RBI lends to other commercial banks—by 50 basis points on Friday. The repo rate was raised for the third time since May.

The repo rate hike may increase inflation further and have an impact on the sale of other commodities. Bharat Madan explains how it affects tractor sales "If you look at the retail finance industry in tractors, the interest rate charges are currently very high. These rates are unaffected by the actions of the RBI. They are not variable rates ". Currently, interest rates on tractor loans can range from 9% to 20% per year, depending on tenure and bank.

"I think it'll be more because of inflation where the impact is coming," he said, adding that the RBI raising interest rates has only a marginal impact.

Read More: Center's Gift to Agriculture Sector: New Tractors Now Available Faster Than Before

Bharat Madan, CFO of Escorts Kubota Ltd, Reacted on RBI Rate Hike

Aside from inflation, other factors influence the demand for tractors. The tractor sales experienced a flattish curve in the second and third quarters of this fiscal year due to the off-season and high base of last year. However, experts anticipate a surge in demand in the fourth quarter of the year.

According to the Federation of Automobile Dealers Association's (FADA) July vehicle retail data, there was a significant decrease in tractor sales, which were showing good growth until a month ago.

The report attributed the drop in tractor demand to erratic monsoons across the states. Due to unfavorable weather conditions, the paddy cultivation area had decreased by 13% by the end of July, resulting in a drop in tractor sales. However, the report mentioned the possibility of increased sales due to the upcoming holiday season.

In terms of the industry's prospects, Madan stated, "This year, we expect the industry to grow in the low to mid-single digits. Because of the low base effect of COVID, the industry grew by 16 percent in the first quarter. The industry was impacted by the second wave of COVID last year."

He also stated that the upcoming month will be slow in terms of sales.

“Normally, monsoon season is not a season month for the industry, but we should start seeing a pick-up in September. If the monsoon distribution is excellent, we should see some good news in the second half of this year "Madan stated.

He also stated that the holiday season will begin earlier this year. This may result in material stockpiling, resulting in an increase in sales beginning in September. As a result, the firms anticipate that September and October will be the busiest months. Ample rainfall, particularly in the northern region, ensures good market growth in the fourth quarter of the year.

Furthermore, according to FADA's June retail report, tractor sales increased by 40% in June 2022 compared to the same month in 2021. Sales are expected to increase in the coming quarter.

Also Read: FY 2023- Escorts plans to raise the capital expenditure to Rs. 350- 400 crore.

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