Investment in tractor industry linked to stable government policy

Further investment in tractor industry is linked to stable government policy that provides at least level playing field to the local manufacturers instead of periodically facilitating tractor imports on concession. Sikandar Mustafa Khan, chairman of a largest local tractor manufacturing company, stated this while addressing the members of Lahore Economic Journalists Association (LEJA) on state of tractor industry in Pakistan.
LEJA President Mansoor Ahmad, Vice President Itrat Bashir, General Secretary M. Sudhir Chaudhry and Finance Secretary Imran Adnan were also present on the occasion. He said tractor is the only automobile sector that has shown sustained growth even during recession of past two years and has always faced foreign competition. He said the Indian and Chinese tractors are more costly than the locally produced units of same specification. "The rates of Indian 50 horse power tractor is Rs 2,25,000 higher than Pakistani tractor while the Chinese tractor is Rs 11000 more expensive.
The main reason for the high competitiveness of local tractors is that the models that command 80 percent of the market have local component level of 91 percent," he added. He observed that these tractors could not compete with the local international brand tractors even if the import is allowed at zero rated duty. He said the local industry should have at least 10 percent duty protection.
He regretted that the Federal government has put undue pressure on the tractor manufacturers by announcing to provide Rs 200,000 subsidy on tractors imported on zero import duty. "This measure would not create dent in the sales of local tractors because of their superior quality but has sent a negative signal for further expansion of production capacities. Currently both the vendors and the manufacturers are operating on their full capacities.
Further expansion in capacities requires huge investment, but the short-term government policies that are subject to change on whims of the rulers hinder further investment," he added. According to him, three times import of tractors was opened during past 13 years, which has eroded the confidence of the tractor manufacturers. First duty free import of tractors was announced in 1996 under the banner of Awami tractor Scheme.
Then the Shaukat Aziz government allowed duty free imports of tractors in 2005. Both schemes failed due to better quality and competitive rates of Pakistani tractors. The present scheme is more dangerous, as the government is providing Rs 200,000 subsidy in addition to waiver on duties and taxes.
"Pakistan produced 53,470 tractors in 2007-08 and the two main tractor manufacturers of the country are on target to roll out 60,000 tractors in this fiscal year. Between July 2008 and March 2009, the industry has produced 42,220 tractors and is set to add another 18,000 units by the end of June this year," he added.
He said tractor demand is likely to stabilise at 55,000-60,000 units in the short-term and further growth would come if the agricultural economy continue to grow at fast pace. He said higher productivity coupled with lucrative commodity rates has empowered even farmers with smaller land holding to afford tractor. "Tractor industry globally is on decline but the Pakistani tractor industry weathered the recession comfortably," he added.
"Though the industry is exempted from taxes and duties but the vendors have to pay sales tax. Manufacturers protect the vendors from liquidity crunch by refunding them the sales tax and then claim refunds from the Federal Board of Revenue. However, regrettably the refunds are delayed by five to six months instead of two weeks as stated in the refund policy. Around Rs 1.5 billion refunds of tractor industry remain struck up with FBR that creates liquidity problems for the industry," he concluded.