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The future of farm Mechanization in India

In 1972, draught animals did ~45% of all the work that went into a farm with agri workers pitching in an additional ~15%. Thankfully that number has now come down drastically with the increasing adoption of tractors and tillers in India, but Indian farm mechanization still has a long way to go.

In today's post, we look at some of the key challenges for mechanization in the country, how policy has attempted to support it, and the path ahead for this much-needed theme.

Farm size:

One of the most pressing issues in Indian agriculture is the size of the farm. Around 85% of Indian farmers fall in the small and marginal farmer category with a farm size of less than 2 hectares. This not only restricts the amount of disposable income a farmer can generate and reinvest in their farms, but also reduces the applicability of a lot of the mechanization equipment.

The market gets around this problem in two ways. First, it can move to tillers, which are better suited for the small farm sizes, and are more affordable than the traditional tractor. The affordability factor is further aided by the liberal government subsidies on these types of equipment. The second way it adjusts to the small farm size issue is by having shared tractors between multiple farmers. While this is a viable solution, the overlap in the key season where these vehicles can be used limits this use-case.

Policy support:

The sector is also supported by a healthy mix of policy support and affordable credit. The subsidies vary based on the size of the equipment (higher for smaller equipment) with the intent of benefiting the poorer folks who would use them, and the category of people using them (higher for SC, ST, marginal farmers, and women). The subsidies generally vary between 25-50% with specific caps on each type of machinery.

Credit flow into agriculture has been helpful too, with a 10% annualized growth in credit to agriculture over the last 5 years.

Where do we go from here:

The sector has a lot going for it, ranging from strong monsoon expectations and improving farm income. However, the high dependence on subsidies given our socio-economic structure, and the inherently volatile nature of these subsidies makes growth a bit shaky. The firms on ground are trying to counter this by introducing subsidy neutral products, walking the thin line between affordability and quality. They are countering the farm size problem with smaller variants of their existing models.

As we head into the next phase of Indian agriculture driven by the government ordinances the sector is definitely one we will track closely!

We have analyzed a leading farm mechanization company under GSN Invest++ | Join to get access to the complete analysis along with access to data on farm size, mechanization, subsidy levels, and more


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