India - Survey of tractor manufacturing industry

psL n C DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT !NTEWD1TAT!ANAT DEVELOPMENT ASSOC!TIAT Not For Public Use Report No. 166-IN SURVEY OF TRACTOR MANUFACTURING INDUSTY INDIA A Background Paper-in connection with the Appraisal of the Eighth Industrial Imports Credit Mn- 16 10 173 Industrial Projects Department This report was prepared for official use only by the Bank Group. It may not be published, quoted | I or cited without Bank Group authorization. The Bank Grou. doess not accept responsibility for L accuracy or completeness of the report. .  Currency Equivalents as at May 11,. 1973 1 US $ = Rs 7.6 1 Rupee = US $ 0.13 1 Million Rupees = US $ 132,000 * India has not yet declared a new par value following the devaluation of the US dollar. The Rupee is officially valued at a fixed Pound Sterling rate; and, as the Pound is now floating relative to the US dollar, the US dollar- rupee exchange rate is subject to change. Conversion in this paper were made at Rs 7.9 to US $ which was the prevailing rate at the time of pre- paration of this report. Time Spans The Indian Government financial year runs from April 1 to March 31. In this report the financial years are written as, for example, 1972/73 designating the financial year from April 1, 1972 to March 31, 1973. Longer intervals of time are written as, e.g., 1970-72 (two year interval), 1970-1978 (eight year interval). Abbreviations AIC - Agro Industries Corporations ARC - Agricultural Refinance Corporation AU License - Actual Users Import License (issued to manufacturer on established level of consumption, not transferable) CKD - Completely Knocked Down Unit DGTD - Directorate General of Technical Development HMT - Hindustan Machine Tools Limited ITC - International Tractors Company of India LDB - Land Development Banks LMB - Land Mortgage Bank RBI - Reserve Bank of India SKI) - Semi-Knocked Down Unit VA1E - Tractor and Farm Eauipment Limited  STJRVEY OF TRACTOR MANIJFACTITPING TNDIA TABLE OF CONTENTS Page sNo. SLUNMARY A,ND CONCLTISIONS .. ........................=..i T. INTRODUCTION . .................. ,.,, . t T. SECTORPlT FRAMEWORK ..... .....................,. A. History, G-overrum.ent Policy and T ns'-ut4ons ....2 B. Industry Structure .. 4 III. ANALYSIS OF PERFORMANCE .................. . ........... , 6 A. Production, Capacity IJtilization and Market Share. 6 B. Plant Operations ... . ... 8 1. Product Engineering. . . 9 2. Manufacturing. . .. 9 3. Material Management .......................... 10 4. Marketing .................................... 1o 5. Financial Controls and Reports .... ........... 10 6. Organization ............................. 11 C. Financial and Economic Performance . .............. 11 1. Prices ............ 2. Cost Structure ........ .. ......... ...... 13 3. Price and Cost Competitiveness .............. 15 4. Profitability, Productivity and Financial Structure ...................................... 16 D. Demand Forecast and Expansion Plans ....... ....... is IV. PRINCIPAL RECOMMENDATIONS AND A PROGRAM FOR ACTION .... 22 A. Current Status and Major Constraints - Synopsis .. . 22 B. Principal Recommendations ................. ........ 23 1. Product Engineering . ................ ....... 23 2. Manufacturing ........... ................ ..... 23 3. Marketing ....... . .. 24 4. Financial Reports and Controls . ........... 24 5. Corporation Organization ..................... 24  -2- TABLE uF CONfTfNTS CONTINuED Paue No. C. Program for Action .... ......................... 24 1. Role of Government ............. . ... 24 2. Role of Firms ........ .25 ANNEXEs- 1 PrnirCt10n nf Trartonrs in Tndia- 1965-1979 2 Plant Operations Rating System 3 EcoFnnin Analysis 4 Financial Data and Analysis EwAP - Tocation of Ma4or Tractor Plants *,.i,.,..t~. ,.C .. AIit - U..k. . ... ..... A...... .kLl..... .LfLl.C. . ij Addit1onal data lis contained in-a..separate report entitled: India, Farm Tractor Sector, General Ajpraisf4 (Vol. 1) and, India, Individ'ual Tractor Manufacturers, General A'rsal tVb1. 2); dated January 15, 1973 and prepared by Raymond . m...bto-Asso,ciates, Inc., Detroit, U.S.A., con.sultants. The consultants report is available from. Mr. Goderez of the Industrial Projects Department on, special request only and since it contains confidential data: on eaph of the. tractor nanizfacturprs its use is restricted to authorized personnel within the Association and Indian Government offfc'iils.  SURVEY OF AGRICULTURAL TRACTOR SECTOR INDIA SUMMARY AND CONCLUSIONS i. Since 1964. the International Development Association (IDA) has extended seven credits to India totalling US$680 million for the import of materials, comDonents, spares and some balancing equipment for selected in- dustrial sectors. The purpose of these credits has been to increase capac- itv utilization and oneratine efficiency and reduce manufacturing cost by helping to provide a timely flow of needed imported inputs at competitive world nrices. Tn its pant annraiRals. IDA had given about equal attention to each of the 5 to 12 industrial sectors variably covered but these apprais- als were evidentlv not sufficiently detailed to allow meaningful recommenda- tions on specific measures regarding sectoral policies and improvement of inditutrinl nprformnance. To arhieve this anal. it was recognized that more intensive sectoral surveys were required and the Indian Agricultural Tractor TndtAit~rv was aslected as one of the t-wn h4ihest nrioritv sectors (the other was Commercial Vehicles) for the initial exercise in connection with the Righth Tn.Asitv4nI TInmprta GreAit. ii. The indian tractor fleet has increaAed from 20go00 in 19q6/%7 tn about 210,000 in 1972/73. While the increase has been rapid, farm mechaniza- tior. 4ls st-4l1 ve.,r low by inentira star.dards; cropped hectares per tractor is 720 in India as compared to 27 in Europe, 40 in the U.S.A., 140 in the USSR anAd90 inn La:i-&a A-^rica. -WW'a~.J L&U L.=64.LI CJUE= A. I-& A.J.J. Asbmbly adU manufacLLe of' tractors started L. i I t U L.d output has increased from 9,000 in 1966/67, the first year of IDA credit to this in- ,- .n4" n r-__ ItU