Tractor makers may incur over ₹5,000 cr capex in FY27 amid demand moderation

CHENNAI: India's tractor manufacturers are expected to incur an estimated capital expenditure of ₹5,000–6,000 crore in FY27, even as volume growth may moderate after a record run in FY26, according to CRISIL Ratings.The proposed capital spending is expected to be largely funded through internal accruals. Investments will likely be directed towards capacity augmentation, product development and compliance readiness.Tractor sales growth is forecast to slow sharply to 0–2% year-on-year, translating to volumes of around 1.2 million units next fiscal. The moderation reflects a normalisation in domestic demand following a high base this year, when volumes are estimated to have surged about 22%, aided by favourable policy support and strong rural sentiment."The reduction in the GST rate on tractors to 5% from 12%, effective 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 next fiscal, representing a phase of normalisation from the current high base," said Anuj Sethi, Senior Director, CRISIL Ratings.Even so, healthy reservoir levels supporting the upcoming crop cycle and stable tractor prices could lend some support in the first half of FY27. However, a potential El Niño may weigh on demand momentum in the second half, he added.Another development that could support tractor demand is the draft proposal by the Ministry of Road Transport and Highways to phase in TREM-V emission norms in a staggered manner, instead of implementing them across all segments from April 1, 2026. If implemented, tractors below 25 horsepower (hp) and above 75 hp will transition to the new standards from October 1, 2026, while the 25–75 hp segment will remain exempt until FY32."The 25–75 hp segment, which accounts for about 90% of volumes, is highly sensitive to price changes. Had TREM-V norms been implemented from April 1, 2026, tractor prices could have risen by 15–20% due to significant engine and exhaust upgrades required to meet stricter emission standards. Such increases would have posed a challenge to sustaining demand momentum," said Poonam Upadhyay, Director, CRISIL Ratings.Despite structural challenges such as small and fragmented landholdings, tractors are increasingly being viewed as multi-utility assets—used not just for land preparation but also for haulage, irrigation and transport. This continues to underpin baseline demand, with replacement purchases accounting for 60–65% of domestic sales and first-time buyers contributing the remaining 35–40%.Exports remain a relatively small component of the industry, contributing about 10% of total volumes in FY26. Exposure to the Middle East is minimal, limiting the direct impact of ongoing geopolitical tensions to logistical challenges such as shipment delays and elevated freight costs.