Tractors’ phenomenal comeback

On a modest recovery in agriculture in FY17, the tractor industry has bounced back phenomenally; as per the latest numbers released by PAMA, tractor sales and production have increased by 65 percent and 60 percent, respectively, over last year.

A variety of factors have contributed to the successful rebound in FY17 from what was possibly the worst year in the tractor industry’s history. Firstly, no market distortions in the form of tractor subsidy schemes were at play in FY17; recall that the Punjab and Sindh tractor schemes of FY16 went unimplemented and deterred prospective buyers who kept waiting, hurting tractor sales.

Secondly, the sales tax on tractors was brought down from 10 percent in FY16 to five percent in FY17. Thirdly, various relief measures such as the fertilizer subsidy and increased availability of credit have played their part in improving the incomes of farmers. And finally, there’s the rebound in agriculture itself, which although modest, has been a definite improvement over FY16 in terms of production and prices.

For FY18, tractor makers have some things to look forward to as well. Firstly, no change is expected in the GST of five percent, which is a definite plus when one considers the yearly revisions seen in the sales tax historically. Secondly, the federal budget announced a slew of measures for agriculture such as tube-well subsidy, duty reductions on imported machineries, loans at a reduced rate of 9.9 percent from ZTBL as against the previous rate of 14 percent, etc.

The target set for agricultural loans in FY18 is in fact the most ambitious in Pakistan’s history (Read: “Agri financing FY18: Shoot for the moon,” published on May 30, 2017). Strong agri financing is definitely a prerequisite for a flourishing tractor industry.

Finally, Sindh has allocated Rs2 billion in a tractor subsidy scheme for FY18. Whether or not this is a positive development is difficult to say, given the track record of these schemes. Even now, there is an ongoing corruption scandal of Rs1.45 billion in Sindh regarding the subsidy scheme of FY16! Whether or not things will be different this time, we’ll just have to wait and see. With that being said, the tractor industry looks well-poised for another strong year.