The market size for less than 40 HP tractors is estimated to reach USD 23.41 billion by 2025. With an engine volume of not more than 1,500 cc, these tractors occupy less space and can be used with greater flexibility. Ease of customization makes them more amenable to experimentation, and consequentially, manufacturers are willing to try new components and technologies in this segment before moving on to high-powered ones. These tractors are compact, with a mass of fewer than 4,000 lbs and use less than 40 PTO HP to run the attachments. Invariably, all these high-production, economical, and user-friendly compact tractors are being used by schools, parks, landscapers, cemeteries, and hobby farmers. Low horsepower tractors work well in soft soil conditions, such as river basins. The less than 20 HP tractors are mainly used for horticulture in India. In developing countries, the demand for lower HP tractors is high due to the low disposable income of farmers and high labor costs. Farmers prefer small and customized tractors for agricultural purposes, due to small farmland sizes. Moreover, lesser fuel consumption by small tractors helps to empower small and marginal farmers.

China has started focusing on the adoption of automated farming machinery through the introduction of driverless tractors. For instance, YTO Group Corporation launched its first driverless tractor in 2017 and is planning to conduct mass production as per the market demand. China’s agricultural machinery had been facing several challenges, like overcapacity and low profit-margins, after the provision of a year-long subsidy scheme for promoting mechanization in the farming, which led to the mass production of low-quality tractors. Farmers are against purchasing equipment, due to the decline in grain prices and lower return on equipment investment. The demand for agricultural tractors reduced during 2016 and 2017, owing to the high existing numbers of tractors and the changes in the subsidy regime for purchasing new tractors. Although the subsidies per machine have declined, the system is now more inclined toward large tractors, as the government seeks to enhance productivity and the yield.

The availability of abundant and cheap labor in India has largely confined farm mechanization to tractors. The penetration of tractors in the country is higher in Northern India, particularly in Punjab, Uttar Pradesh, and Haryana. Tractors are the largest segment in the Indian agricultural equipment category, with annual sales of 600,000 to 700,000 units. India’s tractor export market comprises African and ASEAN countries, and it exports an average of 60,000 tractors, annually. The demand for tractors declined during 2015-16, due to a contraction in the farm incomes, as the production of major crops and commodity prices reduced with lower procurement by the government, owing to adequate buffer reserves. In India, Mahindra & Mahindra Ltd is the leading player occupying the highest share, followed by Tractors and Farm Equipment Ltd (TAFE), VST Industries Ltd, International Tractors Ltd, Force Motors, and Escorts Limited.