By Azeem Ahmed Khan
ISLAMABAD, Oct 18 (Wealth Pakistan): Pakistan’s tractor manufacturing industry has expanded steadily over the past decade, with several new players entering the market. However, inconsistent government policies, inflationary pressures, and high financing rates continue to pose serious challenges to its sustainable growth, according to a spokesman of the Pakistan Automotive Manufacturers Association (PAMA).
New Entrants Boost Competition in Tractor Manufacturing
The PAMA spokesman told Wealth Pakistan that the sector has grown with the entry of new manufacturers such as ATS, Buraq, and Guard World. However, overall sales have remained volatile due to frequent changes in tax policies, fluctuating import duties, and unpredictable government interventions, including short-term subsidy schemes and regulatory shifts.
Pakistan’s cumulative tractor production capacity currently stands at around 80,000 units per year. Rising input costs—driven by inflation and currency devaluation—have sharply raised the prices of imported parts, while floods and high financing rates have squeezed farmers’ purchasing power.
Frequent Tax Changes Disrupt Industry Stability
The spokesman pointed out that frequent changes in sales tax rates—from 10 percent to 5 percent, then to zero, and abruptly to 14 percent—have further raised tractor prices and weakened sales.
“A consistent sales tax regime is essential for stable growth of the tractor industry,” he stressed.
He added that the complex GST refund process ties up manufacturers’ working capital and unpredictable policy shifts create uncertainty that discourages long-term investment planning.
Green Tractor Scheme Benefits Limited to Punjab
According to the PAMA spokesman, small and subsistence farmers remain unable to afford tractors due to high upfront costs, relying instead on rental services for cultivation.
“The government’s Green Tractor Scheme, which provides subsidized tractors, is confined to Punjab and distributed through a balloting system. This limits its reach and excludes many eligible farmers in other provinces,” he said.
The limited implementation, he noted, has reduced its overall impact on farm mechanization, created regional imbalances, and disrupted industry planning. He suggested that instead of fixed quotas, a general subsidy of 10 to 20 percent should be offered to all eligible farmers nationwide.
High Interest Rates Restrict Tractor Financing
While financing options exist, high interest rates remain a major obstacle. “Millat Tractors, for example, partners with Bank Alfalah and Bank of Khyber to offer discounted prices and KIBOR-linked loans, with markups between KIBOR −0.05% and KIBOR +2%. Government financing is currently offered at 7%, which is still high for small farmers—especially compared to India’s 0% financing,” he explained.
Tractor Exports Expand to Africa and Afghanistan
Despite domestic challenges, Pakistani tractors have started to enter export markets. Millat Tractors exported around 2,600 units during 2024–25, with major buyers in Afghanistan, Tanzania, Kenya, Nigeria, and Madagascar.
With about 90 percent local content, Pakistani tractors are competitively priced and attractive to price-sensitive markets, though they face competition from Indian and Chinese brands in technology and after-sales service.
Stable Policies Needed for Long-Term Growth
The spokesman emphasized that tractors are vital for modern agriculture, enabling farmers to cultivate larger areas efficiently, reduce labor costs, and improve crop yields.
He urged the government to adopt stable and transparent policies to ensure sustained growth.
“A consistent sales tax regime, fair subsidy structure, and reduced financing rates—ideally around 3.5 percent through banks—would encourage investment in farm machinery,” he said. “Allocations should be based on clear eligibility criteria rather than balloting so that support reaches genuine farmers.”