India's tractor industry is projected to see volume growth slow to 1-4% in FY2027 from 23.5% in FY2026, an ICRA report says. This moderation is attributed to a high base and the forecast of a below-normal monsoon due to El Nino.
India's tractor industry is expected to witness a moderation in volume growth to 1-4 per cent in FY2027 after a strong performance in the previous fiscal, as a high base and the possibility of below-normal monsoon rainfall weigh on demand, according to an ICRA sector report.
The report said wholesale tractor volumes remained robust in May 2026, but cautioned that growth could soften in the current fiscal year. "Following a robust rise of 23.5% YoY in FY2026, wholesale volume growth is likely to soften to 1-4% in FY2027 owing to a high base effect and the IMD's forecast of a below-normal monsoon," ICRA said in its report.
Strong May Performance
The rating agency noted that wholesale tractor sales recorded strong growth in May. "Wholesale volumes reported strong growth of 19.3% YoY in May 2026, driven by a low base effect and improved affordability following the GST reduction on tractors," the report said.
According to ICRA, tractor demand remained healthy during the month, supported by farm incomes and lower ownership costs. "Wholesale volumes rose sharply by 19.3% YoY, while retail volumes increased by 13.6% YoY in May 2026, driven by a low base effect, steady farm cash flows and improved affordability following the GST rate cut," the report said.
Weather Outlook and Risks
However, the report warned that the weather outlook could pose a risk to agricultural output and tractor demand. "IMD's first-stage Long Range Forecast (LRF) for the 2026 Southwest (SW) Monsoon reflects a below-normal rainfall at 90% +/- 4% of the Long Period Average (LPA), driven by likely development of El Nino conditions during the monsoon season," ICRA said, adding that "a deficient precipitation is likely to have adverse implications on agricultural output and, consequently, tractor sales."
Supportive Farm Fundamentals
Despite the weather-related concerns, ICRA highlighted that farm-sector fundamentals remain supportive. The report noted that both kharif and rabi foodgrain output for AY2025-26 increased by 3 per cent year-on-year, supported by healthy rainfall in calendar year 2025.
The agency said strong crop output, minimum support price (MSP) support and government subsidies continue to support farm cash flows and tractor demand. "While strong crop output in AY2025-26, MSP support and Government subsidies continue to underpin farm cash flows and tractor volumes, the risk of El Nino conditions could weigh on the industry growth with the likely moderation to 1-4% in FY2027, given an elevated base," the report said.
Industry Outlook for Manufacturers
On the industry outlook, ICRA said tractor manufacturers are expected to maintain healthy profitability and strong balance sheets. "The margins of tractor manufacturers are likely to remain healthy, aided by operating leverage and stable raw material costs," the report said.
It added that "credit profiles of the manufacturers are expected to remain comfortable, supported by healthy profitability, low leverage and adequate liquidity." The report also noted that growth is expected to normalise after pre-buying seen ahead of the implementation of revised emission norms, which have now been deferred for the key 30-50 horsepower segment until April 2028. (ANI)
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