PSR Power Systems Research India Private Limited (PSR India), is the India office of Power Systems Research (PSR). Our experienced analysts, including our team in India, work with OEMs, engine and component manufacturers, dealers, fleet managers and industry experts to compile model-level data that is considered the leading source of global information on engines, drivetrains and powered vehicles and equipment.
Farm mechanization in India is steadily evolving from being tractor-centric to encompassing a broader range of machines and technologies aimed at improving agricultural productivity and efficiency. Traditionally, mechanization was equated with the use of tractors, which replaced bullocks in tillage, sowing, and transport operations. The tractor gave Indian farmers a reliable source of power, allowing them to perform heavier and faster field tasks.
A typical pair of bullocks generates just about 1 horsepower (hp), while most tractors sold in India today are in the 41–50 hp range. With nearly 9 lakh units sold annually, tractors form the backbone of India’s farm power economy, contributing over ₹60,000 crore in value terms. Yet, the real shift lies in the rising demand for tractor-mounted and self-propelled farm machinery, driven by the need to overcome agricultural labor shortages and improve overall farm economics.
The US administration has been pressuring India to reduce its import tariffs on cars, but India remains cautious about making drastic changes. While there is some openness to lowering tariffs on imported cars, a complete removal of these duties is unlikely in the near future. The ongoing discussions between the two countries may lead to some tariff adjustments, but India’s primary concern is protecting its local industries.
PSR Analysis. Even if India were to reduce tariffs to zero, the impact on the domestic automotive market would likely be minimal. The duty differences are relatively small, and the risk of imports flooding the market is low. India’s automotive component sector, especially in areas like EV differentials, bevel gears, and crankshafts, has been growing steadily. This sector benefits from India’s low labor costs, significantly lower than countries like Mexico and the US, giving it a competitive advantage in global supply chains.
Aligned with the ‘Viksit Bharat’ vision, the 2025 budget proposes a forward-looking approach for the auto sector, fostering a sustainable ecosystem with financial allocations and duty exemptions. Among the highlights:
Support for EV Manufacturing. The exemption of customs duties on 35 capital goods for lithium-ion battery production is a commendable step toward reducing production costs and improving EV affordability.
Production-Linked Incentive (PLI) Scheme. The government allocated $325.31 million USD (Rs 2,819 crore), down from $403.90 million USD (Rs 3,500 crore) last year, which may raise concerns about the continuity of financial backing for emerging EV and hydrogen fuel cell technology.
Tariff Rationalization. Reduction of tariff categories to just eight simplifies the customs structure and promotes ease of business for auto manufacturers.
MSME Credit Boost. With increased access to credit for MSMEs in the auto component industry, supply chain development will strengthen, driving innovation and expansion. MSME stands for Micro, Small, and Medium Enterprises. This term refers to a significant sector of the Indian economy that plays a crucial role in the country’s economic development and growth.
Dhan-Dhaanya Krishi Yojana. Rural income growth via this scheme, along with increased Kisan Credit Card limits, is expected to boost demand for two-wheelers, tractors, and small commercial vehicles.
“Looking ahead, we expect the gradual increase in infrastructure spending to boost consumption and improve demand, a revival across most CV segments, particularly in buses and vans, which are set to outperform last year’s levels. Intermediate, light and medium commercial vehicles (ILMCVs) are also likely to record similar or improved growth compared to fiscal year 2024.” – Girish Wagh, executive director at Tata Motors
Market Dynamics and Growth Segments The CV industry is set to benefit from the government’s pro-growth policies, particularly in infrastructure. The increased Capex outlay of US$115.5 billion ( ₹10 trillion) in the Union Budget 2023-24 is driving growth in sectors such as steel, cement, mining, and construction, which are key consumers of CVs.
The Indian tractor industry, which faced a stagnant first half of the fiscal year, is pinning its hopes on a robust second-half performance. With favorable developments like healthy reservoir levels, improved minimum support prices (MSPs), and a positive outlook on the Rabi crop, manufacturers are optimistic about achieving double-digit growth by the year-end.
H1 Performance: A Mixed Bag In the first half of the fiscal year, tractor sales remained flat, growing marginally to 472,000 units from 469,000 units in the same period last year. The industry’s decline in FY2024 to 876,000 units, following a record-breaking FY23 at 945,000 units, underscores the impact of a high base effect, weak precipitation, and uneven monsoons. A shift in the festive calendar, with Diwali and Dhanteras occurring later this year, also affected demand in the early months.
“Our next target in terms of geographical expansion is Southeast Asia. We have been talking about it for a long time. We want to get into four different markets in Southeast Asia. “We expanded our range of products (in Middle Eastern markets) and that is why as a result we believe we should be in a position to record one of the best years when it comes to international operations” – Shenu Agarwal, Managing Director and CEO
Ashok Leyland is intensifying its international expansion efforts, setting its sights on Southeast Asia to drive export growth in the coming year. This strategic push is part of a broader plan to strengthen its presence outside India while maintaining strong domestic sales. The company has already launched operations in the Philippines, with Malaysia lined up next, aiming to establish a firm foothold in the region.
As India continues to embrace electrification across many sectors, agriculture stands as one of the next frontiers for transformation. Despite substantial progress in electric vehicles (EVs) for urban mobility, the Agricultural sector, particularly off-road machinery like tractors, remains largely unaddressed. Yet, with emerging technological innovations and government support, electric tractors are poised to revolutionize Indian farming.
Government Initiatives and the Current Landscape.India’s government has taken significant steps to encourage electrification in multiple sectors. Initiatives such as FAME I & II, the Production-Linked Incentive (PLI) scheme, and the Electric Mobility Promotion Scheme (EMPS) have propelled the EV market forward. By the end of FY2024, cumulative EV sales reached over 4.1 million units, primarily dominated by two-wheelers and three-wheelers. However, the agricultural sector remains an exception, with minimal progress in electrifying farming machinery.
Yanmar Holdings announced Aug. 26, 2024, that it will acquire Claas India, a combine harvester and manufacturer in India, and will acquire all its shares Sept. 30, 2024. The amount of the acquisition was not disclosed. The company has been importing and selling combines from outside India but will now start local production. The acquisition will strengthen the company’s business in India, where the market is expanding. Following the acquisition, CLAAS India’s combine harvesters will be produced and sold under the Yanmar brand.
The upcoming festive season presents a promising outlook for India’s automobile sector, with expectations of significant growth, particularly in the two-wheeler (2W) segment. A projected increase of over 15% in the sector reflects heightened consumer interest, fueled largely by a recovering rural economy.
Rural areas, which contribute more than half of two-wheeler demand, are showing early signs of post-COVID recovery. The rise in customer inquiries, especially for mass-market brands like TVS Motors, Hero MotoCorp, and Bajaj Auto, suggests a favorable trend for the festive season.
The launch of new two-wheeler models, such as the TVS Jupiter and Hero Xtreme 125R, is likely to further drive sales. However, premium motorcycle manufacturers like Eicher Motors, producing Royal Enfield, may not experience the same robust demand due to a different target demographic, where rural recovery has less impact.
The Indian automotive market is grappling with a significant inventory challenge, with passenger vehicle stock levels reaching 55 to 60 days’ worth, equating to approximately 550,000 to 600,000 unsold vehicles as of May 2024. This rise in inventory has been a concern for auto dealers, who are already feeling the strain from prolonged high inventory levels. During the previous festive season, inventory levels surpassed 60 days, prompting the Federation of Automobile Dealers’ Associations (FADA) to request reductions in stock dispatches from OEMs and the Society of Indian Automobile Manufacturers (SIAM).
The increasing inventory is placing considerable financial pressure on dealerships. Longer inventory holding periods impact cash flow and increase interest costs, making it challenging for dealers to manage their finances effectively. In response to this growing issue, FADA plans to approach SIAM to advise its members on moderating stock inflow and addressing the inventory surplus.
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