MANY farmers are eagerly awaiting the implementation of the subsidised tractor schemes announced on the eve of the 2015-16 budget by the governments of Punjab and Sindh, as they have held back their plans to purchase the farm machines.

The delay in the initiation of the schemes has resulted in an 8pc decline in tractor production and a 28pc drop in sales in the first quarter of this fiscal year.

The Punjab government had allocated Rs5bn for the distribution of 25,000 tractors while the Sindh government earmarked at a subsidy of Rs200,000-300,000 per unit for 29,089 tractors. A total of 54,089 tractors were to be made available at subsidised rates.

The Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) had expressed its reservations over the scheme at the time, saying the subsidy on each tractor could lead to misuse of the facility. Cash subsidies can result in an ‘erratic demand’ and create distortions in the market, it said.

Tractor sales stood at 6,745 units in the first three months of this fiscal, against 9,363 units in the same period last year. This development is seen by the industry with unease as it has only recently come out of the GST crisis.

An industry spokesman attributed the drop in sales to the ‘wrong policies’ of the government. The industry has achieved 90pc deletion of imported parts, he claimed, while being upbeat over the ‘progress’ made by the sector. More than six assemblers, including two major players, are churning out ‘standard tractors’ at lower cost. A locally produced tractor is now available at Rs700,000 while an imported one of the same quality is available for Rs1.3m.

Pakistani tractors are affordable for middle-class farmers in the country and are sold in large numbers. However, they have no buyers abroad except for Afghanistan, where only 500 units are exported

But federal food security minister Sikandar Hayat Khan Bosan is hardly satisfied with the quality of the locally produced tractors. He warned the industry during a recent meeting with a Paapam delegation to improve the quality of their products or the government would allow competitors to enter the market.

While he admitted that the industry had been striving to meet the demand, the fact remained that the locally manufactured tractors had low-performance engines, poor hydraulic distribution systems, and poor quality hooks and hinges.

The need for upgrading the technology and complying with international standards and specifications in the agriculture sector can hardly be denied. Farm mechanisation comes next, after land and water. So the introduction of new players is the need of the hour as the outdated technology is reducing yields, Bosan stated.

A state-owned company of Belarus will start assembling tractors from January. A deal to this effect was signed during Prime Minister Nawaz Sharif’s visit to Belarus in August. The company will initially assemble 500 tractors per annum and plans to enhance production to more than 20,000 units with an increase in demand.

There is no denying the fact that the import and assembly of tractors from Belarus would induct some competition, but the local industry’s clientele will largely remain intact. Because of their high quality, Belarusian tractors cost Rs1.4m per unit, while local tractors are available from Rs650,000 onwards.

Pakistani tractors are affordable for middle-class farmers in the country and are sold in large numbers. However, they have no buyers abroad except for Afghanistan, where only 500 units are exported.

According to a leading Paapam member, when the industry was thriving and production had reached 59,000 units in 2008-09, 71,500 in 2009-10 and 70,700 in 2010-11, the government suddenly imposed 17pc GST on tractors and parts in 2011. This caused a severe blow to the industry and sales nosedived to only 4,800 units in 2011-12.

However, production recovered to 34,500 units in 2013-14. Most farmers were unable to pay the additional amount of Rs150,000-200,000 added in the price by the sales tax. A large number of auto part makers were badly affected and some went bankrupt.

The incumbent government, however, reduced the sales tax on tractors from 17 to 10pc. As a result, production went up to 48,800 units last year.

Published in Dawn, Business & Finance weekly, November 16th, 2015