Tractor sales growth is likely to slow down sharply next fiscal to 0-2 per cent year-on-year to about 1.2 million units on normalisation of domestic demand after the high base of this fiscal and emerging El Nino weather pattern, according to CRISIL Ratings.

The proposed deferral of tractor emission stage -V (TREM-V) norms and the consequent postponement of price increases could, however, provide some support to demand. This follows an estimated increase of about 22% this fiscal, primarily driven by rationalisation of the goods and services tax (GST) rates, while a favourable monsoon further supported farm incomes and demand, according to CRISIL Ratings’ analysis of five tractor original equipment manufacturers (OEMs), which account for over 90 per cent of the industry volumes.

According to Anuj Sethi, Senior Director, Crisil Ratings, “The reduction in the GST rate on tractors to 5% from 12% which was effective from September 22, 2025, has proved to be a catalyst for sales this fiscal. It has improved affordability, prompting purchases from first-time buyers as well as bolstering replacement demand. Growth is expected to moderate in the next fiscal, representing a phase of normalization from the current high base. Even so, healthy reservoir levels supporting upcoming crop cycle and stable tractor prices could lend some support in the first half of fiscal 2027. However, a potential El Niño may weigh on demand momentum in the second half.”

Despite small and fragmented farms, tractors are increasingly being seen as multi-utility assets for land preparation, haulage, irrigation and transport, supporting sustained demand. About 60-65% of domestic tractor sales are replacement demand, while first-time purchases account for 35-40%.

Another development that could support tractor demand is the draft proposal by the Ministry of Road Transport and Highways to slowly phase in TREM-V emission norms segment-wise instead of the earlier proposal to introduce them for all segments from April 1, 2026. If the draft proposal is implemented, tractors below 25 horsepower (hp) and above 75 hp need to transition to new standards from October 1, 2026, while the 25-75 hp segment is left untouched until fiscal 2032.

Poonam Upadhyay, Director, Crisil Ratings, “The 25-75 hp segment, which accounts for about 90% of the volume, is highly sensitive to price changes. Had TREM-V norms been implemented from April 1, 2026, as earlier proposed, tractor prices could have risen by 15-20%. This is owing to significant engine and exhaust upgrades required to meet the stricter emission standards. Such increases would have posed a challenge to sustaining demand momentum. The draft proposal extends the compliance timeline, eases the near-term cost pressure and offers some relief to both manufacturers and buyers.”

Notably, when TREM-IV norms were introduced in October 2022, it applied only to tractors above 50 hp, with a six-month transition window for OEMs. The resulting increase in compliance costs raised prices in above 50 hp segment, while prices below 50 hp remained largely unchanged, prompting many farmers to shift to 41-50 hp models.

Exports account for a relatively small share of the volume (about 10% in fiscal 2026), of which exports to the Middle East are negligible. Consequently, the direct impact of the current geopolitical uncertainties is likely to be limited to shipment delays and higher freight costs.

Revenue growth is expected to mirror volume growth, given a stable pricing environment. Also, despite the slow volume growth next fiscal, operating leverage is expected to help maintain operating margin at the same level as this fiscal, at 13 to 13.5%. Besides, capital spending next fiscal, expected at ₹5,000-6,000 crore, will be largely funded through internal accruals. Therefore, balance sheets will remain strong supported by a robust cash surplus, despite the subdued volume growth, thereby keeping player credit profiles healthy. So, the progression of the monsoon, El Niño, implementation of the proposed emission norms and movement in commodity prices will bear watching next fiscal.

Published on March 18, 2026