Tractor demand remained strong in June 2026, with wholesale sales increasing 11.9% year-on-year (YoY) and retail sales rising 25.3% YoY, according to ICRA. The growth was driven by a favourable low base, healthy farm cash flows, and improved affordability following the recent GST rate reduction on tractors.
However, ICRA expects the pace of growth to moderate over the remainder of FY2026–27 (FY27) due to the high base of the previous fiscal, lower kharif sowing acreage, and an uncertain monsoon outlook that could impact farm incomes and replacement demand.
According to ICRA, the India Meteorological Department’s (IMD) first-stage Long Range Forecast for the 2026 Southwest Monsoon indicates below-normal rainfall at 90% (±4%) of the Long Period Average, primarily due to expected El Niño conditions. Rainfall during June 2026 has already recorded deficits across parts of central, southern, and coastal India, raising concerns over kharif crop output and rural incomes.
The ratings agency noted that domestic tractor wholesale volumes are likely to witness only modest growth during FY27. It cited the Ministry of Agriculture and Farmers Welfare’s second advance estimates released in March 2026, which showed that kharif and rabi foodgrain production for the 2025–26 agricultural year increased by 3% YoY, supported by favourable rainfall during calendar year 2025.
While higher minimum support prices (MSPs) and continued government subsidies are expected to support farm cash flows and sustain tractor demand, ICRA believes lower kharif acreage and the possibility of a weaker monsoon could limit industry growth to 1–4% in FY27, compared with the elevated base recorded in FY26.
Despite the expected moderation in volumes, ICRA anticipates that tractor manufacturers will continue to maintain healthy financial and credit profiles. Stable raw material costs, operating leverage, robust profitability, low debt levels, and adequate liquidity are expected to support margins and keep the sector’s credit outlook stable.
