New Trem IV emission norms in October unlikely to have major impact on tractor industry: ICRA

The proposed Bharat Trem IV emission norms for the domestic tractor industry will come into force from October 2020 but they are unlikely to create any major headwind for the sector. According to ratings agency ICRA, the new norms will only be applicable for tractors with capacity above 50hp, which accounts for only 13% of industry sales (in unit terms). The rest of the industry that includes tractors below 50hp will migrate to the new norms only from October 2023.

The evolution to new norms is in line with the broader automobile industry in India, which will be migrating to BS VI emission norms from April 2020. Rohan Gupta, AVP, corporate sector ratings, ICRA said , “While major technological changes (including both engine and aftertreatment technologies) are required to migrate to the proposed norms, the technological knowhow is readily available with OEMs, given that tractors exported to various countries are already meeting the evolved emission norms guidelines. However, the pass-through of the incremental cost (related to the technological changes) to the farmers is likely to prove to be a challenge, given the price sensitive nature of the farming community." 

"Although tractor OEMs are yet to announce revised prices after incorporating the changes required for the stringent emission norms, complete passthrough of prices (expected to range between 10-12% for higher horsepower categories) would be unlikely and the same could constrain profitability indicators of tractor OEMs to an extent,” he added.

The Indian tractor industry currently complies with TREM III A emission norms which were implemented in April 2010 and April 2011 in a phased-wise manner. Emission regulations in Europe and USA and many other key markets have progressed in stages and are currently significantly stringent than those applicable in India.

As per ICRA, given that the proposed evolution to Bharat Trem IV is restricted to only the high horsepower tractor segment, the impact of the proposed emission norm evolution on demand in the industry is likely to cause much lower disruption than what is seen across other automobile segments. According to the report, OEMs are also expected to rejig their portfolio to an extent through launch of products under new horsepower categories.