PROJECT REPORT ON

INTERNATIONAL TRACTORS LIMITED

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD

OF BBA (BATCH 2020-2023)

SUBMITTED BY :

Aman Sharma

REGISTRATION NO :

20025042

SUPERVISED BY :

Ms.Neha

Designation : Deparment Of Commerce And Management

SANT BABA BHAG SINGH UNIVERSITY

 ACKNOWLEDEMENT

No Management study is complete without practical experience. Being a BBA student I know that
creativity and practice both are essential elements of management.

I would like to pay my sincere thanks to Management department for providing me a golden chance
to undergo summer training for gaining practical knowledge.

I express my sincere thanks to IMPORT EXPORT OFFICE ( RESEARCH AND DEVELOPMENT)

Team , who has given me a chance to get summer training at SONALIKA TRACTORS. Iam highly
thankful to him for allowing me to work at very interesting project at ITL.

I express my sincere thanks to Mr. Jagjeet Thakur for their sympatric understanding and valuable co-
operation. He is my guide in the sonalika (R&D Department) and I have completed my training under
his valuable guidance.

I am highly thankful to all the staff members of R & D departments for providing their support and co
operation.

Aman Sharma

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2
CERTIFICATE

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4
 CONTENTS

INTRODUCTION TO 4-30
COMPANY

MEANING OF LETTERS OF 31-42

CEDIT

REVIEW OF LITERATURE 44-47

RESEARCH METHODOLOGY 49-55

DATA ANALYSIS AND 56-68

INTERPRETATION

CONCLUSIONS AND 69-71

SUGGESTIONS

BIBLIOGRAPHY AND 72-75

ANNEXURE

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 PART-A

INTRODUCTION

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1.1 HISTORY OF SONALIKA GROUP

FOUNDER – Mr. L.D.Mittal

Sonalika Group - Sonalika group is one of the top automobile and agriculture machinery
manufacturers in India. Apart from tractors its product line includes multi utility vehicles, three
wheelers, engines and various farm equipments and implements. Established in 1969, Sonalika group
since the inception has tried to understand customer need to be facilitating them with its value for money
products. The Company has a state of art manufacturing facilities, spread in acres, located in the free
shrubs of Punjab and Himachal Pradesh.

Sonalika is the one of the top 3 tractor manufacturing companies in India, other products include of,
Multi utility vehicles, engines and various farm equipments. Today the group stands tall with an
approximate turnover of 5000 Crore INR. An average growth of 30% makes it one of the fastest
growing corporate in India. It is also one of the few debt free companies. Group has strength of about
2000 employee technocrats. The company works on the maxims of low production cost and clean and
safe environment. Such efforts have fetched the company the accreditation like ISO 9001 and ISO
14001. History reveals that innovation is the key to continued progress and when applied to technology
that touches human life, it can unfold a whole new economic phenomenon that has the power to change
the world. With unique initiatives like the Thought leadership Forum, Leadership Forum, we have been
able to create a unique platform for learning through success stories of industry leaders. The success

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saga of Sonalika Group a business conglomerate having prime interest in agricultural & auto machinery
goes back to nearly 5 decades. The corporate philosophy embedded in trust, quality and commitment has
helped the group to carve out a niche for itself in the highly competitive world of Machinery. Sonalika
is the fastest growing tractor company registering growth over growth since its inception has crossed
1.80 lac merely in 10 years & has attained one of the position in top three in India

Sonalika group’s products exist in various international markets. Company’s product exported to
Algeria, Angola, Armenia, Australia, Bangladesh, Cameroon, Ethiopia, Ghana, Ivory Coast, Malawi,
Malaysia, Mauritius, Mozambique, Nepal, Oman, Republic of Benin, Senegal, South Africa, Srilanka,
Sudan, Canada, Zambia, Syria, Togo, Tunisia, Ukraine, and Zimbabwe.

1.2 MISSION & VISION

VISION STATEMENT
The dream Project of Sonalika group is to cater the agricultural and auto industry with quality abrasive
products through untiring dedication and leadership.

MISSION STATEMENT
we pay personal attention to customers so that, we can build products they need, and not merely sell the
products we build.

CORE VALUES
To accomplish our mission, the ownership, staff, and management go to great lengths to treat each
customer like a member of the family and provide them with the best choice of products and highest
quality of service in the industry.

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ETHO STATEMENT OR LOGO RATIONALE

Red symbolizes the strength, power, determination, and desire of company.

Yellow surrounding the Sonalika produces a warming effect, arouses cheerfulness, stimulates mental
activity, and generates the same.

Green Leaf in the center symbolizes growth, harmony, freshness, and fertility. Black underlining the
logo associates with power, elegance, and formality.

Orange surroundings the complete logo represents enthusiasm, fascination, happiness, creativity,
encouragement, and stimulation. All this permutation of persona represents the Sonalika group as an
asset in the industry.

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1.3 Details of top executives

1. Chairman- Mr. L.D. Mittal

2. vice Chairman- Mr. A.S. Mittal

3. Managing Director- Mr. Deepak Mittal

4. Finance Head- Mr.Rajnesh Jain

5. Production Head- Mr. Ashok Kapoor

6. Marketing Head- Mr.L.R.Yadav (CEO)

7. R&D Head- Mr. Ashwani Malik

Turnover

The total turnover of the group stands for 3200crore INR. An average growth of 30% makes it one of the
fastest growing corporate in India. It is also one of the few debt free companies.

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1.4 SONALIKA GROUP -MILESTONE

1) 1969, Modest beginning into farm equipment and machine manufacture and earning
name and fame over all these year.
2) 1995 Diversification into manufacture of tractor over whelming response from the
market.
3) 1996 Roll out of first tractor from ITL.
4) 2000 Enter into joint venture with Renault Agriculture France for tractor manufacture
in India.
5) 2000 Started in house manuf. Of engine for tractor application.
6) 2002 Started export of tractor to Africa, Asian sub continental.
7) 2004 Started Roll out of 100000 Tractors
8) 2004 Started establishment of ICML.
9) 2005 Become the fourth largest tractor manuf. In India.
10) 2005, Roll out of first vehicle from ICML facility.
11) 2005 Joint venture with Yanmar Agriculture of Japan.
12) 2006 Successfully developed 4 wheels drive front Axles and transmission of tractors for
Yanmar.
13) 2006 Rollout of 100000th tractor engine.
14) 2006 Become 3rd largest manufacture of tractor in India.
15) 2006 Market launch of Rhino (MUV) and establish dealer’s network.

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1.5 SONALIKA GROUP UNITS

Sonalika group divided into four companies’ .Sonalika group units is as follow:

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1.5.1 INTERNATIONAL TRACTORS LIMITED

International Tractors Limited was incorporate on October 17, 1995 for the manufacture of Tractors and
has since then built a distinct position for itself in the Tractor industry. ITL is manufacturing various
Tractors of Sonalika brand between 30 H.P to 90 H.P, and CLASS brand between 70 hp to 90hp. The
tractors manufactured by company have secured a reputation of performance, quality and reliability in
the market because of their maximum pulling power, minimum fuel consumption and low emission. All
this makes ITL one of the top five tractor selling companies in India. These tractors are also exported to
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various countries including South Africa, Australia, Zimbabwe, Sri Lanka, Canada, Bangladesh,
Algeria, Zambia, Senegal, Ghana etc.

ITL has entered into strategic alliance with YANMAR of Japan for joint manufacturing tractors in India.
ITL has a marketing arrangement with TATA International for development of selected South American
and African market. The company’s marketing efforts are promoted by dealer network of 600, and 450
sub dealers. Such a networking has enabled the company to grow like a well-knit family whose roots lie
in its customers, who have providing constant feedback and support to allow the company to turn their
dreams into products.
They are also manufacturing tractors, meeting norms of Smoke & Mass Emission, Tested and certified
by ARAI, Pune. United States Environmental Norms Agency, Washington DC has also certified our
Engines. These certifications enabled SONALIKA Tractors to enter into world Market. All the Models
of Tractors and Combines Harvesters manufactured by us are tested & approved by central Farm
Machinery and Tractors Training & Testing Institute, Bundi (MP) India, (the Government of India
Institute authorized for issuing test reports).

Address- International Tractors Limited Jalandhar Road, Hoshiarpur (Pb.) Pin-146022 (India)

1.5.2. INTERNATIONAL CARS AND MOTOR LIMITED

International Cars & Motors Limited (ICML) is a Group Company of the Rs 1200 Crores SONALIKA
Group. The Company is promoted by Mr. L.D.Mittal (Chairman), Mr. A.S.Mittal(Vice Chairman) &
Mr. Deepak Mittal, Managing Director, who are having vast experience in manufacturing of tractors,
Farm machines & Automobiles.

ICML is a project of its kind and is the ‘Pride of Himachal Pradesh’. The Company is having its state-
of-the-art production facility, with centrally air-conditioned, dust & pollution free environment, to
manufacture multi-utility vehicles / sports – utility vehicles, in Amb, Himachal Pradesh.

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The Company is a ‘Mother Unit’ as its establishment shall attract many other ancillary & small units for
meeting the raw material requirements yielding manifold employment avenues, revenue &
industrialization in the state.

The Company has entered into Technical Collaboration Agreement with MG Rover of UK, with the
technical know – how from MG Rover, UK. The Company has manufactured MUV with the name of
RHINO RX & the same MUV boasts of Rover engines. The company is in-process of developing its
own Common Rail Direct injection (CRDi) engines.

The company has the installed capacity to manufacture 2000 MUVs in a month i.e., 24000 MUVs in a
year. In the first full year of production in 2006-2007, ICML is aiming to churn out about 5000 MUVs
& expects to achieve a turnover of 250 Crores. The Company, besides catering to the domestic market,
also has an eye on exports & exports to Malaysia, Nepal, Bangladesh & Indonesia are also in an
advanced stage. It will also offload the product in African continent soon.

The Company is eligible for the Central & State Govt. Tax sops, exemption from the excise duty &
income tax for 10 years, which shall add to its viability & future expansion.

Sonalika Group intends to inject Rs. 1000 Crores in Himachal Pradesh over the next 2 -3 years in the
upcoming ICML plant & ICML has an ambitious plan to play a major role in the Indian Automobile
Industry. International cars & motors ltd, car plant is located in foothills of Shivalik Range and
surrounded by natural greenery of Himalayas at AMB (HP) a tax-free zone. The total area of plant is
93,000 Sq. M. out of which 42,000 Sq. M. is covered area. Plant capacity to produce 24000 cars in a
year.

Address:-Amb Distt., Himachal Pradesh.{Tax Free Zone}

1.5.3. INTERNATIONAL AUTOTRAC FINANCE LIMITED (IAFL)

International Autotrac Finance Limited is a non banking finance company approved by RBI.

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IAFL provide finance to customers of International cars & motors limited in rural & semi urban areas
across India through customer friendly schemes.

Its parent company Sonalika Group ranks among the largest tractor & farm equipment manufacturer in
India

Business Plans of IAFL

First Phase: In the first phase, the area of operations will be in the state of Punjab, Haryana, Jammu, H.P
(Done).

Second Phase: In the second phase, the area of operations will be extended to other parts of Northern
India.

Third Phase: In the third phase, the area of operations will be extended to whole India.

1.5.4. SONALIKA AGRO INDUSTRIES CORPORATION

Sonalika Agro was established in 1971 to support the Indian farmers with mechanization technology to
facilitate persistence of green revolution. Sonalika Agro Industries Corporation, the group’s maiden
venture is one of the foremost Farm equipments and implements manufacturing companies in India with
80% share in threshers alone. Its product line includes Combine Harvesters, Tractor/Self Driven straw
reapers, Potato Planters, Maize seller –cum-Dehuskers, Seed –Cum- Fertilizers Drills, various kinds of
threshers, etc.; Sonalika Agro is a pioneer in manufacturing tractors mounted combine harvester, which
is not popular in India, but also in various others countries across the globe. Today, the company is
supporting the farmers with world class farming equipment to ease the process of making the Green
Revolution II, a dream come true. In the light of the company's mission, highly qualified and
experienced staff is working as a family in the manufacturing facility at Hoshiarpur (Pb).

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Product and Services of All Group Units

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 2.1 International Tractors Limited

This company mainly deals with tractors brands and these tractors also exported to different markets in
foreign countries. These brands are as follow:-

TABLE - PRODUCT CATEGORIES

TRACTOR NAME HORSE POWER LIFTING CAPACITY

DI-750III 50 1600Kg
DI-730II 30 1200 Kg
DI-735 35 1200 Kg at lower links
DI-55 55 1200 Kg at end of lower links
DI-750II 50 1200 Kg
DI-90 90 1600 Kg at end of lower links
DI-75 2WD 75 1600 Kg
DI-750 50 1200 Kg at end of lower links
DI-60 SENIOR 60 1200 Kg at end of lower links
DI-75 4WD 75 1600Kg
DI-740III 40 1200Kg
DI-60 2WD 60 1600Kg

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DI-740 40 1200 Kg at end of lower links
DI-398X(north speeds) 39 1200Kg
DI-60 4WD 60 1600Kg
DI-745III 45 1200Kg
DI-35 35 1200Kg
DI-340S 40 1600 Kg at end of lower links
Rx42 45 1200Kg
DI-47Rx 50 1200Kg
DI-730III 30 1200Kg at ends of lower links
DI-732III 34 1200Kg at ends of lower links
DI-60Rx 60 1600Kg

2.2. Sonalika Agro Industries Corporation

This company mainly deals with agricultural equipments and implements. That are helpful to the
farmers in agriculture The product line of the sonalika agro industries corporation is as follow:-

 Combine Harvestors

 Threshers

 Potato Planters

 Maize Sheller-cum

 Seed-cum-Fertilizer Drills

 Straw Reapers

 Ploughs

 Harrows

 Tillers

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2.3. International Autotrac Finance Limited

This company basically deals with services which are provided to farmers, salaried for finance the
tractors and other agricultural equipments and implements. Provide financial assistance to them.

2.4. International Cars and Motor Limited

At present this company produces one car model Rhino Rx a MUV by this group and also working on
the new car model INSPIRE and this will launch within this year.

Market

No wonder Sonalika products have created a niche for themselves not only in India but also in foreign
markets including France, Africa ,Bangladesh , Srilanka, Senegal, Mali, South Africa, Canada, Syria and
many of the South Asian countries. Some of the international clients are as follow:

MG Rover, Power Train, Renault, Yanmar

In domestic market sonalika products are popular in all across the India. In Punjab, there are 45dealers
of sonalika tractors.

There are 70 dealers of International cars and motor products all over the India.

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3. INTERNATIONAL TRACTORS LIMITED

As per the training concern my training is in the sonalika tractors that is International Tractors limited.
This company mainly deals with tractor manufactures and also some other like Generators etc.ITL was
established in 1995-96 with a covered area of 25 acres. It is situated at distance of 7 km from Hoshiarpur
on Hoshiarpur-Jalandhar road. It is specialist in manufacturing of producing three cylinder diesel
engines of tractors. The first tractor manufactured by the company on 14th Oct, 1996. In Oct, 96 the
capacity of the company was one tractor in two days. It has sold 400 tractors in the first year of
launching tractor & now the production rate is 1200-1250 tractors per month but installed capacity of
company is 100 tractors per day. It has developed its own 60HP diesel engine.

ITL’s Hosiarpur situated plant is spread across 50,000sq.meter, which is having fully computerized and
high level modern machines. Presently, the production capacity of plant is 100 tractors per day. Near
about 3000 people engaged in the plant including workers, technicians, and engineers on regular basis
and around 3000 people work on contract basis.

Competitors of Sonalika tractors are as Escorts, Eicher, Hmt, Mahindra and Mahindra, Swaraj/PTL,
Tafe/Massey, New Holland ford,

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ACHIEVEMENTS

-Company has produced smoke free diesel engine

-Company has increased its production of diesel engines up to 60 engines per day

-International Tractor Limited has a network of network of more than 1000 dealers -
Computerized tractor plant

-First Indian tractor engine750III conforming to Euro II norms

-Pride of country awarded to Sh L.D MIttal, Chariman.

-Gold medal awarded to Sh. A.S Mittal, Vice Chairman

-Udyog Bhushan awarded to Sh. Deepak Mittal, MD

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3.2 DISTRIBUTION NETWORK

Followed by Sonalika:

COMPANY

DEALER OR STOCKIST

CUSTOMER

Followed by other firms:

COMPANY

STOCKYARD

DEALER

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 DIRECT & SUBDEALER

CUSTOMER

3.3 ORGANISATION CHART FOLLOWED BY ITL:-

Chairman

Vice-Chairman

Managing Director

Chief Operating Officer

Joint Chief Operating Officer

HOD of Every Dept.

Managerial Staff

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 Executives

Support Staff

Workers

3.4 CERTIFICATIONS

A) ISO – 9001

ITL has got ISO-9001 quality system certified by International Certification Ltd. It is for use when
conformance to specified requirements is to be assured by supplier during several stages which may
include design, development, production, installation & servicing.

Sonalika has arranged collaboration with French Renaults for technical know-how and marketing. With
the help of this collaboration SONALIKA will develop its own DI-740 Tractor engine which will help it
to reduce its cost.

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B) ISO 14001:2004 Environment Management System

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3.5 Study of functioning of departments

Production:-

ITL has fully integrated and state of the art assembly facilitation for producing world class tractors.
Several productivity improvements in assembly line over the years have made it possible to manufacture
nearly 37000 tractors per Year. Atomization of assembly line not only increased production capacity,

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but also provided a quantum jump to the quality of assembled tractors. ITL assembly line producing
tractors in broad range from 30HP to 90HP with effective planning of resources.

Highlights of Assembly Facilitations:

Automated conveyors (Toe-in conveyors, slat conveyor and overhead conveyors.) for sub-assemblies as
well as for major assemblies and final product.

Quality, Assembly & Testing Tools:

 Hydraulic Test Rig Up to 1600Kg Lifting Capacity

 Millipore Testing Equipment. Torque calibrator

 Hydraulic presses

 A unique 3-Stage oil filtration system having modern facility of centrifuge filtration

 Batch type Special purpose machines (SPM) at various locations for washing of heavy castings,
components & subassemblies

 Pipe flushing machine for proper cleaning of hoses & pipes

 Induction Heaters for controlled heating of bearings

Standard testing procedures for final product

 Roller testing Field Testing

 Road testing

Research & Development:-

Brief of R & D:

 ITL R & D center is recognized by government of INDIA

 ITL R&D is a complete dep’t in itself starting from designing up to development,

implementation

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Capabilities:

 Highly qualified team of engineers for designing of transmission & vehicle areas

 Vendor development is capable for the development of new projects components of R&D
through vendors & commercial settlement

 Vendor quality control is capable for ensuring quality requirements of components through
verification at vendor end

 High skilled workers are capable for making any types of prototypes

Facilities:

 High configuration workstations are used for design activities

 Team center is used for PLM concepts

 I-Deas, Solid-Edge & Auto Cad is used for 3D & 2D design activities

 Two transmission test rigs.

 Circular test track (mgr) & Roll over protection test rig.

 Hydraulic system test rig.

 Endurance test rig for operator seat & fenders.

 Pto test bed & Endurance test rig for MUV gearbox under commissioning.

 Proto machine shop with HMC, radial drilling & turning centre.

Engine R&D Center:

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Sonalika have In House Design Engine R&D department with up-to-date technology. Having a team of
exceedingly competent & remarkable squad of engineer’s proficient of designing most excellent Engines
in technology.

Engines developed so far available in rating of 28-90 HP. Sonalika has started spreading roots in MUV
manufacturing with own R&D team and designed two exclusive engines with latest technology.

Engines are designed with Rotary FIE from BOSCH & (CRDi) Common Rail Diesel that gives variable
geometry turbocharger for superior engine response .The in house R&D has all supplies required for
complete design of engine from structural parts to emission development. Use of CAD and FEA is made
to design robust parts. While Emission test cell is also being commissioned using equipment imported
from AVL Austria world leader in emission measurement for conducting in house emission.

New Tractor Engine under G1 Series MUV Engine (Rover) Proto-type stage

This center is capable of designing new technologically advanced Engines & its various components. It
can also carry out DFEMA for its own design or any other components.

In-house R&D capabilities:

The in house Engine R&D department of Sonalika is one of the finest. Possessing a team of highly
qualified team of engineers capable of designing complete engine from ground up. Engines developed
so far include tractor engines from Hp rating of 28-90 Hp.With entry of Sonalika group into MUV
segment two engines have been developed by the in house R&D exclusively for the MUV application.

The engines have been developed using latest technology. One engine uses Rotary FIE from BOSCH
while the other engine is a Common Rail Diesel Engine (CRDi) with variable geometry turbocharger for
improved engine response at all points during engine operation. The in house R&D has all tools required
for complete design of engine from structural parts to emission development. Use of CAD and FEA is
made to design robust parts. While Emission test cell is also being commissioned using equipment
imported from AVL Austria world leader in emission measurement for conducting in house emission
measurement.

Quality Assurance:-

The entire evolution of Quality is classified into 4 phases

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  Inspection Phase

 Quality Control Phase

 Quality Assurance Phase

 Total Quality Management Phase

Equipments used for Quality Assurance,

 Profile Projector used for inspection of Critical Parameters e.g. Thread, Gear profiles etc.

 3D Co-ordinate Measuring Machine(CMM)

 Software Used For Measurement(CMM)-(Geometrical 3D measuring software) In this

software,we can calculate & store co-ordinate of component as per drawing specification as
well as Geometrical tolerances (Flatness, Concentricity, Parallelism & Positioning) with
Graphical Presentation. With help of Geopak –Win generate a program of each component &
run in CNC mode, safe a time, generate presentable report as per requirement. Scanning is
the option in GEOPAK – WIN,with that you record contours and surfaces, realize nominal
actual comparisons with contours, calculate geometrical elements at the contour after
scanning & import contours from external systems, respectively export them to systems
(Auto cad, Ideas for modeling purpose).

 STANDARD ROOM

 GEOPAK-WIN: - Scanning is the option in GEOPAK – WIN, with that you record contours
and surfaces, realize nominal actual comparisons with contours, calculate geometrical
elements at the contour after scanning & import contours from external systems, respectively
export them to systems (Auto cad, Ideas for modeling purpose).

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3.6 SWOT Analysis:-

STRENGTH:-

 Human Resource
 Research & Development
 Physical Resources:- SAP, own IT dept.
 Availability of finance
 Investors Relationship

WEAKNESS:-

 Import of tractor implements

 Unsuccessful Rhino car
 Lack of advertisement regarding their products

OPPORTUNITIES:-

 Unexplored Markets for Exports :-Mexican & Brazilian markets

THREATS:-

 Competitors
 Mahindra & Mahindra
 New Holland
 John Deere
 TAFE

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 LETTERS OF CREDIT
INTRODUCTION: ‘Letters of Credit’ also known as ‘Documentary Credits’ is the most
commonly accepted instrument of settling international trade payments. A Letter of Credit is an
arrangement whereby Bank acting at the request of a customer (Importer / Buyer), undertakes to pay for
the goods / services, to a third party (Exporter / Beneficiary) by a given date, on documents being
presented in compliance with the conditions laid down.

PARTIES TO A LETTER OF CREDIT : A letter of credit transaction normally involves the

following parties :

i) APPLICANT / OPENER – the buyer of the goods / services (Importer) on whose behalf the credit is
issued

ii) ISSUING BANK - the Bank which issues the credit and undertakes to make the payment on behalf
of the applicant as per terms of the L/C.

iii) BENEFICIARY - the seller of the goods / services (exporter) in whose favour the credit is issued
and who obtains payment on presentation of documents complying with the terms and conditions of the
LC.

iv) ADVISING BANK – Banks which advises the LC, certifying its authenticity to beneficiary and is
generally a bank operating in the country of the beneficiary.

v) CONFIRMING BANK – A bank which adds its guarantee to the LC opened by another Bank and
thereby undertakes responsibility for payment/acceptance/negotiation/incurring deferred payment under

33
the credit in addition to that of the Issuing Bank. It is normally a bank operating in the country of the
beneficiary and hence it’s guarantee adds to the acceptability of the LC for the beneficiary. This is being
done at the request / authorization of the Issuing Bank.

vi) NOMINATED BANK – A Bank in exporter’s country which is specifically authorized by the
Issuing Bank to receive, negotiate, etc., the documents and pays the amount to the exporter under the
LC. 4

vii) REIMBURSING BANK – Bank authorised to honour the reimbursement claim made by the
paying, accepting or negotiating bank. It is normally the bank with which Issuing Bank has Nostro
Account from which the payment is made to the nominated bank.

viii) TRANSFERRING BANK – In a transferable LC, the 1st Beneficiary may request the nominated
bank to transfer the LC in favour of one or more second beneficiaries. Such a bank is called Transferring
Bank. In the case of a freely negotiable credit, the bank specifically authorised in the LC as a Transferring
Bank, can transfer the LC.

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 TYPES OF LETTERS OF CREDIT

1. REVOCABLE LETTER OF CREDIT: A revocable letter of credit is one which can be cancelled
or amended by the issuing bank at any time and without prior notice to or consent of the beneficiary.
From the exporter’s point of view such LCs are not safe. Besides exporter cannot get such LCs
confirmed as no bank will add confirmation to Revocable LCs. However, if any bank has negotiated
bills before receipt of notice of revocation, opening bank is liable to honour its commitments. The LC
should clearly state that the same is revocable. As per Article-3 of UCP 600, a credit is irrevocable even
if there is no indication to that effect. Further UCP 600 does not provide for revocable LCs and therefore
such credits no longer exist

2. IRREVOCABLE LETTER OF CREDIT: An Irrevocable Letter of Credit is one which cannot be

cancelled or amended without the consent of all parties concerned.

3. REVOLVING LETTER OF CREDIT: 5 A Revolving Letter of Credit is one where, under terms
and conditions thereof, the amount is renewed or reinstated without specific amendments to the credit
being needed. It can revolve in relation to time and value. This type of credit is generally used in local
trade and sometimes for import also. Such credits are opened for a stated amount and the drawings under
the LC are reinstated as soon as the documents are paid. The LC can be restricted to the individual
amount of drawing at a time as well as aggregate amount of drawings. The Issuing bank has to confirm
to the negotiating bank about the acceptance / payment of the documents for reinstatement of the amount
in the LC. In revolving LC for import, the maximum drawings and the validity would be to the extent
permitted by the import licence, if such imports are backed by Import Licence. Generally, we do not
open Revolving LCs for import. However in exceptional cases such L/C may be opened with adequate
safeguards / conditions subject to strict compliance of Foreign Trade Policy and Exchange Control
Regulations particularly with reference to aggregate drawings under such L/C & shipment dates etc

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4. TRANSFERABLE LETTER OF CREDIT: A Transferable Credit is one that can be transferred by
the original (first) beneficiary to one or more second beneficiaries. When the sellers of goods are not the
actual suppliers or manufacturers, but are dealers/middlemen, such credits may be opened, giving the
sellers the right to instruct the advising bank to make the credit available in whole or in part to one or
more second beneficiaries. The LC can be transferred to more than one second beneficiary provided LC
permits partial shipment and aggregate value of amounts so transferred does not exceed value of original
LC. The LC can be transferred only once and only on terms stated in the credit, with the exception of : -
The amount of the Credit, 6 - Any unit price stated therein, - The expiry date, - The latest shipment date
or given period for shipment, - The period for presentation of documents, any or all of which may be
reduced or curtailed. The percentage for which insurance cover must be effected may be increased to
provide the amount of cover stipulated in the credit. The LC is deemed to be transferable only if it is
stated to be ‘Transferable’ in the LC. Second beneficiary has no right to transfer to third beneficiary.
However, he can retransfer to the first beneficiary. As per our Bank’s policy, Transferable Import LCs is
normally not opened. However, transferable LCs can be opened in exceptional case, by specifying the
second beneficiaries in the LC itself or by amendment, provided. i) Second beneficiaries should be
specific and limited in number, ii) Satisfactory credit report on second beneficiary should have been
received. Further the second beneficiary must be a shipper / manufacturer or supplier of goods. iii)
Second beneficiary should normally be residing in the same country. If resident of another country,
method of payment of second beneficiary’s country should conform to Exchange Control Regulations.
iv) Underlying contract indent/order should provide for such transfers

5. BACK TO BACK LETTER OF CREDIT :In case of a transferrable LC, the beneficiary can ask the
nominated Bank to transfer the credit in favour of his suppliers. But, where the 7 credit is not
transferrable and in cases where in a middle man enters into a contract to supply goods to be obtained
from other suppliers but is unwilling to disclose the identity of the buyer and the buyer also is unwilling
to open a Transferable Letter of Credit, such Back to Back credits are opened. Irrevocable letter of credit
opened by the buyer, is used by the beneficiary as security with his bank against which it agrees to open
LC in favour of the actual supplier / manufacturer. The beneficiary of the original L/C will become the
applicant for the second set of L/C (back to back L/C). The terms of back to back L/C will be almost
identical to the L/C received from the buyer except to the extent of amount, unit price and delivery
dates, which will be prior to the expiry of original L/C. The original credit which is offered as security /

36
backing is called the PRINCIPAL CREDIT or OVERRIDING CREDIT and the credit opened on its
backing is called the BACK TO BACK credit or COUNTERVAILING CREDIT.

6.RED CLAUSE LETTER OF CREDIT: Such letters of credit contain a clause which enables the
beneficiary to avail of an advance before effecting shipment to the extent stated in the LC. The clause
used to be printed in red, hence the LC is called Red Clause LC. The nominated bank provides the pre-
shipment credit to the beneficiary as per the authority given by the issuing Bank. In case the beneficiary
fails to export the goods or fails to repay the advance the nominated bank gets the amount paid by the
issuing bank.

7.GREEN CLAUSE LETTER OF CREDIT: This is an extension of Red Clause Letter of Credit, in
that it provides for advance not only for purchase of raw materials, processing and/or packing but also
for warehousing and insurance charges at the port 8 pending availability of shipping space. Generally
advance is granted under this LC only after goods are put in bonded warehouses etc. up to the period of
eventual shipment. In such cases warehouse receipts are obtained as security / documentary evidence.

8.PAYMENT LETTER OF CREDIT: Payment credit is a sight credit which is available for payment
at sight basis against presentation of requisite documents to the issuing bank or the nominated bank. In a
payment credit, beneficiary may or may not be called upon to draw a Bill of Exchange. In many
countries, because of stamp duties even on sight bills, drawing Bill of Exchange is dispensed with.

9. DEFERRED PAYMENT LETTER OF CREDIT Deferred Payment Credit is an usance credit

where, payment will be made by Issuing bank, on respective due dates, determined in accordance with
the stipulations of the credit, without the drawing of Bill of Exchange. In a way, it is an extended
payment credit. Under deferred payment credit, no Bill of Exchange will be called upon to be drawn, but
it must specify the maturity at which payment is to be made and how such maturity is to be determined.
Deferred payment arrangements for Imports, providing for payment beyond 6 months from the date of
shipment up to a period of less than three years are treated as Trade Credits for which procedural
guidelines laid down by RBI for External Commercial Borrowing and Trade Credits are required to be
followed.

10.ACCEPTANCE LETTER OF CREDIT: Acceptance Credit is similar to deferred payment credit

except for the fact that in this credit drawing of a usance Bill of Exchange is a must. 9 Under this credit,

37
Bill of Exchange must be drawn on the specified bank for specified tenor, and the designated bank will
accept and honour the same, by making payment on the due dates.

11.NEGOTIATION LETTER OF CREDIT: Negotiation Credit can be a sight credit or a usance

credit. A Bill of Exchange is usually drawn in negotiation credit. The draft can be drawn as per credit
terms. In a negotiation credit, the negotiation can be restricted to a specific bank or it may allow free
negotiation, in which case it is called as ‘Freely Negotiable Credit’ whereby any bank who is willing to
negotiate can do so. Under a negotiation credit, if the bank nominated as a negotiating bank refuses to
negotiate, then the responsibility of issuing bank would be to pay as per terms of that credit. However, if
the Bill of Exchange is drawn at a tenor (on DA basis) the issuing bank can pay less discount. In other
words, in all circumstances under a negotiation credit, responsibility of the issuing bank is to pay and it
cannot say that it is the responsibility of the negotiating bank. A bank which effectively negotiates
draft(s)/document(s) buys them from the beneficiary, thereby becoming a holder in due course.

12.CONFIRMED LETTER OF CREDIT: Confirmed Letter of Credit is a Letter of Credit to which

another bank (bank other than the issuing bank) has added its confirmation. This is to say, in a
Confirmed Letter of Credit the beneficiary will have a firm undertaking of not only the bank issuing the
credit, but also of confirming bank. The bank which adds its confirmation is called a confirming bank
and it becomes a party to the contract of LC. Generally the confirmation to a credit is desired by
beneficiary from a bank known to him, preferably the one located in his country so that his risk becomes
localised and he can deal easily with a 10 local bank rather than deal with a bank abroad which has
issued the credit. But this type of LC is costlier to the parties concerned, since there would be charges of
confirming bank. The LC will be confirmed by another bank with prior arrangement, only when it is
advised to do so by the opening bank. Confirmation can be added only to irrevocable credits and not to
revocable credits. When a bank acts as an advising bank, it has the only responsibility to verify the
genuineness of the credit. But when it adds its confirmation, it becomes a prime obligor like the issuing
bank and undertakings to pay / negotiate / accept the documents as per the terms of the credit.

13. STANDBY CREDIT :The standby credit is a documentary credit or similar arrangement however
named or described which represents an obligation to the beneficiary on the part of the issuing bank to
make payment on account of any indebtedness undertaken by the applicant, money borrowed or for any
default by the applicant in the performance of an obligation. These credits are generally used as a
substitute for financial guarantees. In countries like USA, Japan it is not permissible to issue bank

38
guarantees. Therefore, banks in these countries issue standby letter of credit in situations where normally
a letter of guarantee should have been issued. The document generally called for under such credits is a
simple statement of claim as certificate of non performance. The standby works as a guarantee in the
background of the underlying transaction and it is expected that it will never be drawn. This facility may
be extended on a selective banks for applicants with good track record. The nature of transaction is clean
and hence is risky

IMPORT LETTERS OF CREDIT: COMPLIANCE OF REQUIREMENTS:

An import LC is a commitment by the issuing bank to make payment, for the imports which are to be
taken place on a future date. While opening import LC, the following requirements of various agencies
are to be complied with. 11 An Import LC is normally opened when:

i) A resident in India is importing goods / software / designs and drawings into India

ii) A resident merchant trader for the purpose of merchanting trade is importing goods from one country
for sale to another country

iii) An Indian exporter executing a contract abroad, imports goods from a third country into the country
where the project is being executed

39
.TRADE CONTROL REQUIREMENTS : Trade Control lays down the policy and regulations
relating to physical movement of goods into India. Hence bank has to first ensure that goods to be
imported can be physically brought to India under the Foreign Trade Policy. Import shall be free except
in cases where they are regulated by the provisions of the Foreign Trade Policy or any other law in force
for the time being. Item wise import policy shall be as specified in ITC (HS) published and notified by
DGFT from time to time. Hence L/Cs should be opened as per the conditions relating to importability of
the respective item as stated in ITC (HS) Classification. Valid import licence issued by competent
authority should be submitted by the importer, if required under the policy.

FEMA GUIDELINES

Exchange Control Regulations of RBI lay down conditions/procedures of payments to be made for
import of goods into India. Detailed EC Regulations pertaining to Import are furnished in Chapter 19 of
this manual. Payments are to be made in strict conformity with these regulations. An Import LC should
be opened only on behalf of bank’s own customers who are known to be participating in the trade and
for whom valid sanctioned limits for issuance of Import LCs are in force. "Know Your Customer"
(KYC) rules should be observed while handling import transaction. 12 20.3.3. CREDIT NORMS Import
letter of credit requirements of a customer are to be assessed like any other normal credit proposal in
view of the fact that : i) Though initially a non funded credit facility, it has the potential to turn into a
funded facility.

40
ii) Usance LC on DA basis is a substitution of funded facilities. If imports are of capital goods,
availability of adequate long term funds in the form of Term Loan/DPG, Surplus Cash flows etc. are to
be ensured.

The following are also to be considered before sanctioning on Import LC limit :

i. ABILITY OF THE APPLICANT to retire the import bills on due date/presentation and/or
availability of funded facilities to meet his import payment obligations including payment duties and
taxes. It must be ensured that the applicant will be in a position to clear the goods by payment of duties.

ii. STANDING OF THE OVERSEAS SUPPLIER : Credit standing and capability of the supplier to
ship the goods as per the requirements is to be assessed by the branches by obtaining a credit report from
the overseas banker of the supplier/Credit rating agency for establishing import LCs of over USD
100000/ or its equivalent. Waiver of Credit report above the cut off limit should be referred to regional
office and within the cut off limit should be by the Branch Manager/Officer of Scale IV grade. The field
Officials are required to formally record waiver of credit reports after the delegatee has examined such
requests for all transactions within the monetary ceiling. The branch has to be satisfied about the
standing of the import clients based on their track record for waiver of credit reports. Each transaction is
to be carefully scrutinized in relation to the underlying contract and the request of our customer.

iii. ECONOMIC IMPORT ORDER : The minimum economic import order and the accepted level of
inventory are to be considered along with the total usance period and total lead time while fixing the
quantitive limit.

iv. EXCHANGE RISK : As the import LC is drawn in a freely convertible foreign currency, the
importer is exposed to exchange risk. Therefore importer may be advised to consider booking of forward
contract to protect himself from adverse movement of the exchange rates. Delegated Authority for
approval of waiver would be with the respective sanctioning authority, who has sanctioned the credit
limits

41
 FEDAI/UCPDC PROVISIONS/INTERNAL CONTROL GUIDELINES :

FEDAI guidelines regarding opening of LC, crystallization of liability etc., are to be followed strictly.
Similarly standard formats of LC application/LC documents are suggested by FEDAI which are also
adopted by us subject to certain changes. UCPDC lays down various guidelines for handling LC based
international trade transactions. These are also to be borne in mind. Provisions of URR, (Uniform Rules
for Reimbursement) are also to be followed with regard to reimbursement instructions. In addition,
precautions like landed cost, ruling price comparison, manufacturing capability for actual user licence,
storage and marketing facility etc. are also to be appropriately considered.

GENERAL GUIDELINES

 Original letter from DGFT allotting an IEC Number is to be scrutinized and a certified copy to be kept
on record for all customers desiring to open LCs for import purposes. 14

 LC application form (AD 04) and following documents are to be obtained from the importer. i)
Underlying contract or indent ii) Exchange Control copy of valid import licence, or Open General
Licence (OGL) declaration stating that the goods are freely importable furnishing therein ITC(HS)
classification number. iii) Insurance policy or cover note if the imports are on FOB or C&F basis for
110% of LC value, in the currency of the LC to be opened and in favour of the Bank A/c importing
customer iv) Declaration under FEMA 1999, Section 10(5), Chapter III v) Credit Report on Overseas
Seller from the approved credit rating agency, for LCs value exceeding USD one lac and above or
equivalent Branch to satisfy that: i) The LC application cum agreement form is adequately stamped as
per respective State Stamp Duty Act/Laws ii) The LC application is signed by an authorised signatory of
the firm, company etc. The signature is to be verified by the processing officer to satisfy the
genuineness. However, no rubber stamp/initial for having verified the signature is to be affixed on the
application, since it is a stamped security document. In the case of companies, common seal of the Co. is
to be affixed as per sealing clause contained in the Articles of Association duly backed by Board

42
Resolution. iii) The LC application is complete in all respects with clear and consistent instructions
which correspond to the conditions / provisions of accompanying contract / indent / licence. In case of
any variance the importer customer should be asked to obtain necessary modifications. iv) The
beneficiary of the LC should not be importer himself or his nominee or his buying agent. Further,
beneficiary should be either a manufacturer, supplier or shipper of the goods. Care should be taken 15
with regard to method of payment where the beneficiary is in one country and shipment is authorised
from a different country. v) If the commodity imported is subject to actual user condition or any other
condition, its compliance is ensured by the branch. vi) If the merchandise is freely importable, the
relevant declaration paragraph in the LC application is properly filled in. vii) The insurance policy /
cover note provides coverage up to 110% of the invoice value, in the currency of invoice in the banks’
name and covers risks under Institute Cargo Clause ‘A”. If ‘shipment on deck’ is permitted under the LC
the risk of jettisoning and washing overboard should be covered in case LC permits transshipment, such
risk must be covered by insurance. The validity of the insurance should be in consonance with the
LC/contract terms. viii) The LC should stipulate a condition that goods should be consigned to the bank
with importer as a notify party. ix) If the import is from Nepal/Bhutan payment under the LC is to be
made only in Indian Rupees. Similarly if imports are from ACU countries, payment under the LC should
conform to ACU mechanism. x) If the import is covered under licence, the importer must submit
Exchange Control copy of the same. The licence must be scrutinised to ensure that:

 it has not been cancelled by any notification/order etc.

 it is issued on security paper

 it has a printed number and date

 it has a security seal (including on the annexures, if any)

 it is issued in the name of applicant or properly transferred in his name with proper transfer letters
where transferer’s signature is attested by his bankers.

 commodity specified is in agreement with the item specified in the application.

 quantity / quality / value limits specified are in agreement with those mentioned in the application. It
is pertinent to note that irrespective of 16 the sale terms for which letter of credit is proposed to be

43
opened, licence must have adequate value to cover CIF value plus agency commission and interest if
any.

 country of origin of goods if stated in the licence agrees with that specified in the letter of credit
application.

 country of shipment authorised is in agreement with the one stated in the letter of credit application.

 it is valid for shipment atleast up to the last shipment date requested for in the letter of credit
application.

 if licence stipulates any specific conditions, such conditions should be complied with by the
holder/applicant.

 if licence is issued under any bilateral or multilateral or aid agreements, the conditions stated in the
concerned agreements and the relative ITC notification should be complied with. It has to be ensured
that licence is operative.

 if licence stipulates placement of order within a specified time limit, the sale contract submitted must
confirm compliance of the condition. xi) The L/Cs to be advised through a bank specified by the opener
provided we have prior arrangement with that bank. Alternatively, the L/C should be advised through
the bank with whom we have arrangement, with instructions to advise the L/C through the bank
specified by the L/C opener subject to his approval.

STANDARD CLAUSES IN LC :The LC is to be opened incorporating all mandatory/standard clauses

listed below and other clauses as per LC application. The terms laid down in the LC should conform to
the Exchange Control / Trade Control regulations.

LIST OF MANDATORY CLAUSES:

1.All required documents except transport documents and insurance and in cases specifically stipulated,
must be issued by beneficiary only 17

44
ii) Transport documents / Bills of Lading / Airway bills dated prior to LC date are not acceptable.

iii) Invoice required to be submitted for a value not exceeding draft/Bill of Exchange amount.

iv) Short Form and third party Bills of Lading are not acceptable.

v) Transport documents indicating final place of destination different from port of discharge, documents
indicating ‘intended’ or a similar clause in relation to the vessel, other means of transport and/or port of
loading and/or the port of discharge are not acceptable.

vi) Transport documents or Bill of Lading / Airway bill issued by Clearing and Forwarding agents /
Freight Forwarders acting as Carrier Agents/Carriers are not acceptable.

vii) Transport documents or Bill of Lading / Airway bill to indicate date on which goods loaded on
board the vessel / flight no and date.

viii) LASH transport documents in case of sea shipments are not acceptable.

ix) Transport documents showing any charges additional to freight charges such as cost of disbursement
related to loading, unloading or similar operations are not acceptable

x) Documents must be presented for negotiation within 21 days of each shipment. (Note: Period may
vary based on importer’s requirement and mode of transport and transit time from the exporting
country).

xi) Insurance is required to be issued irrespective of percentage, with the following : ‘Insurance Policy /
Certificate dated not later than B/l unto order and blank endorsed for 110% over invoice value covering,
Institute Cargo Clause (A), Institute War Clause (Cargo), Institute Strikes Clause (Cargo) and
Warehouse to Warehouse Clauses with claims payable in India irrespective of percentage. Insurance
also to cover the age of the vessel.’

xii) All documents required in English only.

xiii) Goods to be shipped by seaworthy vessel and a certificate to that effect as per Llyods or equivalent
classification society from Steamship Company or their agent if it is a member of the Conference Line
to accompany 18 documents. ( This clause is to be incorporated only in case of shipment by sea)

45
xiv) A certificate of inspection by well known international inspection agencies to accompany
documents, wherever required xv) A discrepancy fee clause of US$ 50 as per the following : ‘Without
prejudice to our right to refuse to take up the documents presented which are not in compliance with the
terms and conditions of this L/C, discrepancy fee of US$50 will be deducted from the proceeds of any
drawing if documents are presented with discrepancies and same are accepted by us. Notwithstanding
any instructions to the contrary, this charge shall be to the beneficiary’s account’. Branch Head / Chief
Managers are permitted to delete those additional clauses which are not mandatory from Exchange
control / Trade Control / FEDAI point of view. In such cases following procedure is to be adopted. i)
Request to delete / change / add any clause is to be considered after assessing the additional credit risk.
ii) Branch to satisfy itself about credit worthiness / capability of the customer to honour the documents
without any reserve, on first presentation. iii) Genuine need for such deletion / change / addition to L/C
clauses to be ascertained iv) Branch to explore the possibility of substitute cover for additional credit
risk exposure.

AGE AND SEAWORTHINESS OF SHIPPING VESSEL The stipulation regarding shipping vessel
not to be older than 20 years can be relaxed subject to availability of Marine Insurance and proper
classification of sea worthiness. In such cases LC should contain following clause : ‘Shipment by
seaworthy vessels classed 100A1 by Lloyds or equivalent classification society and a certificate from
steamship Co. or its agent to that effect to accompany the documents’. 19 List of few approved
classification societies is as under : Name i. Lloyds Register ii. American Bureau of shipping iii. Bureau
veritas iv. Germanischer Lloyds v. Korean Register of Shipping vi. Nippon Kaizi Kyokai vii. Registro
Italiano Navale viii. Det Norske Veritas ix. China Classification Soceity x. Russian Maritime Registar of
Shipping 20.7. UCP POINTS TO BE REMEMBERED The following important provisions of UCP are
to be borne in mind while opening Import LC :  A credit which does not state whether it is
‘REVOCABLE’ or ‘IRREVOCABLE’ will be deemed as an ‘IRREVOCABLE’ credit (Art.3 of UCP
600)  If a LC or an amendment is issued by an authenticated transmission which does not contain
words ‘FULL DETAILS TO FOLLOW’ or similar such phrase or does not state that the mail
confirmation is to be operative LC or amendment, then the transmission will be operative LC or
amendment. (Art. 11 a & b)  Once documents under LC are presented to an issuing branch it must
46
scrutinise them immediately on receipt of the documents and inform the beneficiary or the nominated
bank of the discrepancies in the documents and state whether the documents are refused and held at its
disposal or are being returned, not later than the close of the Five banking day following the day of the
receipt of the documents. In the event of failure, issuing branch will not be able to reject the documents.
Even if negotiating bank has pointed out discrepancies, the LC 20 opening branch should separately
scrutinise the documents themselves (Art.14).  If LC contains words like ‘FIRST CLASS’, WELL
KNOWN’, ‘QUALIFIED’, ‘INDEPENDENT’, ‘OFFICIAL’, ‘COMPETENT’, or ‘LOCAL’ used to
describe the issuer of a document, allow any issuer except the beneficiary to issue the document (Art.3).
 A bank shall treat as an original any document bearing an apparently original signature, mark, stamp
or label of the issuer of the document, unless the document itself indicates that it is not an original
(Art.17b) A document may be signed by handwriting, by facsimile signature, by perforated signature, by
stamp, by symbol or by any other mechanical or electronic method of authentication.  If a LC calls for
additional documents (other than commercial invoice, insurance and transport document), without
indicating its data content or name of the issuer, branches can accept documents as presented provided
the are not inconsistent with other documents(Article 14f)  Branches can accept documents bearing
dates of issuance, prior to that of the LC, provided LC does not specifically prohibit the same. But such
documents have to be presented within the time limits set in the LC. If no such presentation time is laid
down in the LC, branches will not accept the documents presented 21 days after date of shipment
(Article 14i).  Unless specifically stipulated in the LC, branches will accept a transport document
which does not indicate that the goods are loaded or will be loaded on deck. However, branches will
accept transport documents containing a provision stating that the goods may be carried on deck
provided it does not specifically state that they are or will be loaded on deck (Art.26a). 21 
Transhipment means unloading and reloading from one vessel to another vessel during the course of
ocean carriage from the port of loading to port of discharge. If transhipment is not prohibited by the LC,
the branches can accept a transport document indicating that the goods will be transhipped provided the
entire carriage is covered by the same transport document. (Art 20b). Even if the LC prohibits
transhipment, branches can still accept transport documents of the following type: i) A transport
document which contains a printed clause stating that the carrier has right to tranship the goods. ii)
Where the LC allows combined or multimodal transport and the transport document indicates that the
goods will or may be transhipped, provided the entire carriage is covered by the same CTD/MTD. iii)
Transport document (bill of lading) which indicates that transhipment will take place as long as the

47
goods are shipped in contained(s)trailer(s),’LASH’ barge(s) provided that the entire ocean carriage is
covered by one and the same bill of lading. iv) An air transport document indicating that transhipment
will or may take place provided that the entire carriage is covered by one and the same AWB.  A clean
transport document is one which does not bear any clause or notation expressly declaring a defective
nature of goods or its packaging. The world ‘clean’ need not appear on a transport document, even if a
credit has a requirement for that transport document to be ‘clean on board’ (Art.27)  Branches should
not accept claused / unclean transport document, unless LC permits acceptance of such transport
documents  Unless the contrary is provided for in the LC, branches (a)should not accept insurance
cover note issued by brokers (b) Insurance documents should be in the currency of the LC (Article 28
c/f(i)).  The value of the insurance documents should normally be as stated in the LC. If LC is silent,
the minimum amount of insurance cover should be the CIF or CIP value of the goods as the case may be
plus 10%, if CIF or CIP value can be determined from the documents. Otherwise branches will accept
insurance 22 cover for 110% of the amount for which payment, acceptance or negotiation is requested
under the LC or 110% of the gross amount of the invoice, whichever is the greater (Art.28.f.ii).  If the
LC states ‘Insurance against all risks’ branches can accept an insurance document containing any ‘all
risks’ notation or clause, whether or not bearing the heading ‘all risks’, without responsibility for any
risks stated to be excluded (Art.28h).  Unless specifically prohibited, the negotiating bank can accept
commercial invoices issued for amounts in excess of the amounts permitted by the LC provided, it has
not effected payment for an amount in excess of that permitted by the LC (Art.18 b.)  Words ‘about’,
‘approximately’ or similar expressions used with reference to credit amount, quantity or unit price
would be taken to mean as allowing for a 10% variation (+ or -)for that particular aspect only (Art.30a.)
 If the LC does not stipulate unit price but stipulates that quantity of goods stated therein should not be
exceeded or reduced, shipment of exact quantity of goods stated therein should take place (e.g. 100 MT
of sugar). If no such clause is there in the LC, a tolerance of 5% more or 5% less is permissible,
provided total drawings under the LC does not exceed the LC value. This tolerance is not available if the
quantity of goods is expressed in terms of specific number of packing units or individual items (e.g. 100
MT of sugar packed in 1000 bags weighing 100 kgs each) (Art.30b).  If the LC which prohibits partial
shipment, states otherwise tolerance of 5% less in the amount of drawings is permissible, provided : a) If
LC mentions quantity of goods, such quantity has been shipped and b) If LC states unit price, such unit
price is not reduced. If words like about, circa, etc. are mentioned, this provision does not apply. (Art.30
c) (Art.29.c. covers the situation where a credit is issued on a CIF basis but the amounts of freight and
48
insurance quoted by the beneficiary are invariably estimates. If the credit details the value of goods and
freight / insurance cost separately it can be seen from the documents presented that the full goods have
been shipped and that any discrepancy is due to the initial overestimation of freight and insurance) 23 
Unless, the LC specifically stipulates otherwise, partial shipments and/or partial drawings are allowed
(Art.31 a.)  Banks do not accept responsibility for interruption in business due to acts of god, riots,
civil commotions, wars, strike, lockout or any other reason beyond their control. If the LC expires
during such interruptions, branches should not pay, accept, negotiate, incur deferred payment
undertaking under such expired LCs (Art.36).  If the expiry date of a LC or the last day for
presentation of documents reckoned from the date of issuance of shipping documents falls on a day on
which the nominated bank is closed for business for reasons other than those given in Article 36 of UCP
(Force Majeure), the date gets extended to the first following day on which such bank is open (Art.29a).
But, the shipment date does not get extended for the above reasons.  When the LC uses expressions
such as ‘PROMPT’, ‘IMMEDIATE’, ‘AS SOON AS POSSIBLE’, and the like, the branches should
disregard them. (Art.3)  As per Art. 3 of UCP 600, in documentary credit operations, date terminology
will be understood or construed as under :  Words ‘TO’, ‘UNTIL’, ‘TILL’, ‘FROM’, and ‘between’ or
words of similar expression referring to shipment will mean to include the date specified. Unless the
credit specifically provides that ‘FROM’ is considered to include the date mentioned, therefore the
words ‘FROM’ or ‘AFTER’ have the same effect.  Word ‘AFTER’, will exclude the date mentioned.
 ‘FIRST HALF’ of the month will mean from the1st to the 15th of the month and second half will
mean 16th to last day of the month (both dates inclusive)  ‘BEGINNING’ ‘MIDDLE’ or ‘END’ of a
month will mean from the 1st to the 10th day 11th to 20th and 21st to last day of the month (both)

49
MAJOR MARKET PLAYERS

50
1. INTRODUCTION

India is basically an agricultural country. Almost 70% of India’s population is engaged in agriculture for
their bread and butter. Since the Indus valley civilization, agriculture is the main source of income. In
the early age the use of tractor was very low. Green revolution was the result of tractor and other input
used in agriculture. Today India is the largest tractor market estimating 300,000 tractors with annual
growth rate of 13.3%. It means 7 tractors per thousand. Today tractor industry is of about 5000 crores.

The beginning

The decade of 60’s in India saw a green revolution resulting in increase in both production and
productivity. With an emphasis on industrialization, the birth of Indian tractor too place in 1959-60
when the imports were restricted. Total indigenous production of tractors by 1965 was just 6000.

With the successful introduction and acceptance of high yielding seeds, however, there was a sudden
upsurge in demand for tractors after 1967 and demand started multiplying at an annual rate nearly 50%.

The second phase

Seeing the sharply growing demand, Tractor industry became the most sought in the country and as
many as 18 fresh entrants approached the govt. for setting up the manufacturing units. The interest of a
large majority however lay in quick profits through sale of imported tractors. Nevertheless 6 new
manufacturers did enter the tractor industry; 4 in private sector and 2 in govt. combined output of 11
units had risen to 32000 by 1975

51
The Maturing Years

With the entry of new units in 1970 and due to increasing govt. pressure, indigenization picked up
substantially after 1970 & by 1978 all most all the tractors manufacturer were nearly indigenous.

A fillip to indigenization was also given by overall industrialization of the country, when a large number
of ancillary units were established and were in a position to supply a wide range of components to the
tractor industry.

The Present Scenario

The industry faced recession during 1992-93. Sales fell to 1.44 lac tractors from 1.50 lac tractors during
the year 1993-94. However there was a silver lining to the cloud. During 1994-95 1995-96,1996-97 sales
stood 1.64,1.91,2.20 lac tractors respectively. In fact exports have now become a thrust area. Different
producers are now in line producing different Horse Power tractors according to their available markets
around the world.

Higher productivity and greater output are the two major contributions in farm mechanization. Tractors
form an integral part of farm mechanization and have a crucial role to play in increasing agricultural
productivity. Tractor is a highly versatile piece of machinery having a multitude of uses, used in
agriculture both for land reclamation and for carrying out various crop cultivation and also employed for
carrying out various operations connected with raising the crops by attaching suitable implements and to
provide the necessary energy for performing various crop production operations involved in the
production of agricultural crops. Tractors are capital intensive, labor displaying used as a mode of
transport, in electricity generation, in construction industry and for haulage operation. It has now
become an integral part of farm structure .The application of tractor for agricultural activities which
swept India during the last twenty years have erased the problem of farmers. Farm mechanization
program in India aims to integrate the use of available human and animal farm power with mechanical
sources of power for increasing the productivity.

Indian tractor industry, comparatively young by world standards have expanded at a spectacular pace
during last four decades. Consequently it now occupies a place of pride in India's automobile industry.
U.S.A., U.S.S.R. and only a few Western European countries exceed the current production of tractors
in India, but in terms of growth India's growth is unmatched even with countries of long history of

52
tractor manufacturing. The spectacular achievement reflects the maturity and dynamism of tractor
manufacturers and also the policies adopted by the government to enable it to effectively meet the
demand. The tractor industry in India has made a significant progress in terms of production and
capacity as well as indigenization of technology. It is a typical sector where both imported technology
and indigenous developed technology have developed towards meeting the overall national
requirements. The global spotlight on tractors manufacturers certainly in terms of volume seems to be
swinging away from the USA, UK and Western and Eastern Europe towards India where growth in the
number of producers and the total volume in recent years have been impressive. In India tractor industry
has played a vital role in the development.

India's gross cropped area is next only to United States of America and Russia and along with
fragmented land holdings has helped India to become the largest tractor market in the world. But it drops
to eight position in terms of total tractor in use in the country when compared to international figures,
only 3% of total tractors used all over the world . It is to be noted that while the overall automobile
industry is facing recession the tractor industry is growing at 9%.About 20% of world tractor production
is carried out in our country only. The arable land in India is high as 12% of the total arable land in the
world. Tractor market in India is about Rs 6000 crore. On an average around 400000 tractors are
produced and their sale is 260000.Uttar Pradesh is the largest tractor market in our country. One out of
every four tractor is being purchased here. Indian tractor market has to be viewed considering its
position in the world with respect to key parameters as given below:

53
1.1 INDIAN TRACTOR MARKET

DESCRIPTION UNITS WORLD INDIA INDIA RANK

TOTAL/AVG

Arable Land Mn Hectare 1444 170 2

Irrigated Area Mn Hectare 249.6 45.8 2

Tractors In Use Tractors/000 Hectares 28 10.5 8

The Tractors available in developed countries have advanced features and accessories that are not found
in Indian tractors .Tractor industry has made a steady and satisfactory progress even in drought areas.
Four factors have contributed to the steady progress:

* Government laid stress on the mechanization of agriculture with a view to boost food grain
production. Therefore agriculture sector started receiving financial assistance.

* There is an increase in awareness among the farmers for the need of farm mechanization and are keen
to acquire tractor with the help of credit facilities from financial institutions.

* Agronomists believe that there is need for more tilling due to depletion of moisture and repeated
cultivation of land .It is precisely for this reason that the demand for tractors was well maintained even
during a draught period.

* Animal power available is too inadequate to meet power demand of our farmers. Mechanized
operations are preferred to eliminate drudgery and delay, also labour shortage during harvesting
increased the use of tractor.

At the end of the day there are enough reasons to believe that the industry will grow because:

* More farmers are opting for multiple cropping over last decade. Country's net cropped area had
remained virtually stagnant while gross cropped area increased by about 4.7% .This indicates
the increased popularity of multiple cropping.

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* 95% of tractor sales are on credit. Credit is extended by commercial banks, state land development
banks and regional rural banks.

* Irrigation facilities reduce reliance on the monsoon and allow for quick yielding varieties of food -
grain .This reduces the cropping cycle to 3-4 months from the traditional 5-6 months. Reduced cropping
cycle require deep tilling which translates into higher demand for tractors.

* Cost of tractors in India is the cheapest in world .The cost of a finished tractor here is as much as the
cost of gear box in developed countries. Hence there exists tremendous scope for exports.

* According to a study conducted by PHD Chamber of Commerce and Industry , Since purchase of
tractor involves a big investment its demand in affected by the availability and easiness of credit. A
higher availability of credit will lead to a higher demand for tractors.

* The tractors between the 31-40 horse power and 31-40 hp range dominate the market .The reason for
medium horse power tractors being more popular are that the major tractor demanding states like Punjab
Haryana and Uttar Pradesh have plenty of alluvial soil which does not require deep tilling. Lately it is
visualized that higher hp segment has the maximum growth potential Higher horse powered tractors will
be the future requirement with the government intention to encourage contract farming through the
leasing in and leasing out of farm lands.

* Regarding exports India of latter has been exporting tractors to a number of countries, but
predominantly to Srilanka ,Nepal and U.S.A .However the study reveals that exports from India are
going down in the recent years .The major reason for the decline in exports of tractors of tractor from
India is being the failure to find an extensive market overseas ,deteriorating foreign exchange situation
in African countries and their poor buying capacity, comparatively cheaper imports of second hand
tractors by South East Asian countries from developed countries and the disintegration of erstwhile
U.S.S.R. but also the potential export markets can be explored by Indian in the future. Since Indian
tractors confirm to the international standard by virtue of their foreign collaboration it is possible for
India to export to more tractors to the rice and wheat growing countries like Canada, Philippines and
Bangladesh.

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1.2 FOREIGN COLLABORATION

Tractor industry along with others benefited from this policy which allowed free inflow of foreign
technology .The manufacture of tractors started in India mainly with the help of foreign collaboration
secured from internationally reputed companies from the USA, UK, USSR, WEST GERMANY,
POLAND, and CZECH SLOVAKIA. Most of the models which were taken up for manufacture in India
were developed overseas. Soon after the decision for the manufacture of tractors was made during
second plan, government approved number of foreign collaboration agreements. The establishment and
present status of tractor industry owes a great deal to the support received by the Indian entrepreneurs
from foreign collaboration during the initial phase of manufacture.

DSIR has introduced a scheme, "National Register of Foreign Collaborations", which envisages review
and analysis of imported technologies in the country and suggested measures for appropriate choices
acquisition and implementation of foreign know-how. Major objective of scheme is:

* To undertake financial, economic and legal analysis of set of data on foreign collaboration.

* Carry out a technological analysis of the imported technology and provide a stage of art technology in
the country and status of implementation of collaboration.

* Co-ordinate with Ministry of Industry, Commerce and Finance by providing technology data input.

* Selective support to strength measures in Research and Development for technology absorption.

List of tractor manufacturers, their collaborators and the year of commencement of production:

1.2A MANUFACTURERS AND COLLABORATORS

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 TABLE 4:

MANUFACTURER COLLABORATOR YEAR

Eicher Tractors Ltd Gebr, Eicher Tractor. West Germany 1961

TAFE Messey Ferguson. UK 1961

Mahindra And Mahindra International Harvestor. UK 1965

+Escorts Tractor Ltd Ford .U.K. 1971

Hindustan Machine Tools Motokov -Praha. Czechoslovakia 1971

Punjab Tractor Limited CMERI.INDIA 1974

International Tractors Own know-how 1998

New Holland Tractor New Holland Tractors .Italy 1999

1.3 MAJOR PLAYERS IN INDIAN TRACTOR MARKET

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 The tractor industry in India has developed over the years to become one of the largest tractor markets in
the world. From just about 50,000 units in early eighties the size of tractor market in the country has
grown up to over 200,000 units. Today industry comprises of 14 players, including 3MNCs. The
opportunities still are huge considering the low farm mechanization levels in the country, when
compared to other developed economies across the world. After a downturn during last 3-4 years, the
industry is back on a growth path, which we believe would sustain incoming years as well. Key concern
for the industry is its dependence on agricultural income in hands of farmers and the state of monsoon.

Tractor Segments: 30 - 40 HP dominates with over 50 percent share

Tractor industry is classified into three broad segments, based on the power delivered by the engine
Horse Power (HP)

SEGMENTS HORSE POWER MARKET SUITABILITY

SHARE(%)

Small Tractors 21-30 23-25 Tractors suited for soft soil conditions
and preferred in well irrigated northern
states.

Medium Tractors 31-40 53-56 Used in southern and western region

due to hard soil conditions.

Large Tractors 41-50 17 Rich farmers with larger land holdings,

especially in Punjab and Haryana.

Large Tractors >50 2-4 Used in Turnkey project sites such as

building sites for canals, dams and civil

Construction projects.

Today there are as many as 14 players operating into tractor manufacturing activity in the country.
However, about 90 per cent of market is shared among the top 5-6 players only. Mahindra and Mahindra
continues to dominate the industry with close to 30 per cent share, while other players like TAFE,

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Escorts, PTL, ITL and Eicher enjoys market share of 15 per cent , 14 per cent , 11 per cent , 11 per cent
and 10 percent respectively.

1.4 MAJOR PLAYERS IN TRACTOR MANUFACTURING

1. ESCORTS

In 1960, Escorts set up the strategic Agri Machinery Group (AMG) to venture into tractors.

In 1965, they rolled out their first batch of tractors under the brand name of Escort.

In 1969, a separate company, Escorts Tractors Ltd., was established with equity participation of Ford
Motor Co., Basil don, UK for the manufacture of Ford agricultural tractors in India.

In the year 1996 Escorts Tractors Ltd. formally merged with the parent company, Escorts Ltd.

Technologies-

Escorts AMG has three recognized and well-accepted tractor brands, which are on distinct and
separate technology platforms.

Farmtrac - World Class Premium tractors, with single reduction and epicyclical reduction
transmissions from 34 to 75 HP.

Powertrac - Utility and Value-for-money tractors, offering straight-axle and hub-reduction tractors from
34 to 55 HP. India’s No.1 economy range – engineered to give spectacular diesel economy.

Escorts - Economy tractors having hub-reduction transmission and twin-cylinder engines from 27 to 35
HP. Pioneering brand of tractors introduced by Escorts with unbeatable advantages.

2. JOHN DEERE

Deere & Company, founded in 1837 (collectively called John Deere), has grown from a one-man
blacksmith shop into a corporation that today does business around the world and employs
approximately 56,000 people. The company continues to be guided, as it has been since its beginning,

59
by the core values exhibited by its founder: integrity, quality, commitment and innovation. To expand its
global presence in Agricultural equipment, John Deere established the India Tractor business in 1997
under a ‘50:50’ joint venture with Larsen & Toubro Limited (L&T). In 2005, John Deere acquired the
remaining shares in the joint venture. The India Tractor business includes a fully integrated
manufacturing facility with three focus factories - Engine, Transmission and Vehicle Assembly. Spread
over 112 acres with 50,000 m2 of covered area at Sanaswadi, Pune, it produces modern tractors from 35
to 70 HP for both domestic and international markets. These include North & South America, Europe
and South East Asia where they have earned a reputation for quality

3. TAFE

TAFE full name is Tractor and Farm equipment limited. TAFE is a US$750 million tractor major
incorporated in 1960 at Chennai in India, in collaboration with Massey Ferguson (now owned by AGCO
corporation, USA). TAFE acquired the Eicher tractors business, its engine plant at Alwar and
transmissions plant at Parwanoo through a wholly owned subsidiary “TAFE Motors and Tractors
Limited. A member of the Amalgamations Group of Chennai, this company has four plants involved in
tractor manufacturing at Mandidheep (Bhopal), Kallidaipatti (Madurai), Doddabalbur (Bangalore) and in
Chennai. Apart from being among the top five tractor manufacturers in the world, TAFE is also involved
in making diesel engines, gears, panel instruments, engineering plastics, hydraulic pumps, plantations
and passenger car distribution through other divisions and wholly owned subsidiaries.

TAFE Motors and Tractors Limited has, apart from the tractor manufacturing plant at Mandideep
mentioned above, a Diesel Engine plant at Alwar, Rajasthan producing a range of air cooled and water
cooled diesel engines up to 80 HP with plans are on to increase the product range up to 125 KVA. The
Transmissions Division located at Parwanoo in Himachal Pradesh produces a range of transmission
components both for captive use as well as for sale to OE manufacturers.

TAFE Access Limited is a wholly owned subsidiary of TAFE involved in the manufacture and
marketing of farm implements, trailers and accessories, distribution of passenger cars, manufacture of
hydraulic pumps and panel instruments to discerning customers both in India and overseas.

TAFE’s Engineering Plastics Division produces a range of components for the consumer electronics, IT,
white goods and automotive sector and has the distinction of being awarded Toyota Quality Award.

60
TAFE’s Power Source Division produces a range of automotive batteries for both two wheeler and four
wheeler applications for sale through AMCO Batteries Ltd. As well as for sale directly through a
dedicated distribution channel under the brand name of “Speed”.

4. MAHINDRA & MAHINDRA

The Mahindra group's Farm Equipment Sector (FES) is amongst the top three tractor brands in the
world. It has won the Japan Quality Medal in 2007. It also holds the distinction of being the first tractor
company globally to win the Deming Application Prize in 2003. FES is the first tractor company
worldwide to win these honors. This shows the strong focus of FES on Quality and Customer
Satisfaction. Today, the domestic market share of FES is around 42%. (Mahindra brand: 30% and
Swaraj brand: 12%).

The motto of FES is to usher prosperity; for its customers, dealers, employees, society and all other
stakeholders.FES has 6 state-of-the-art manufacturing plants (including 2 plants of Swaraj) in India, 2
plants in China, 3 assembly plants in USA and 1 assembly plant in Australia. FES has a presence in
around 25 countries across six continents with more than 1000 dealers world-wide.

FES has a subsidiary agricultural tractor manufacturing company in India known as Mahindra Gujarat
Tractor Limited (MGTL).

5. HMT

HMT was the fulcrum on which the industrial development of India was envisaged. It was set up in
1953 to meet the challenge and take up the pioneering role in the development of machine tools - the
vital component for industrial development.

HMT successfully diversified into diversified areas of engineering. Leading this diversification drive
was the HMT Tractor Business Group. Since its inception in 1971, HMT Tractor Business Group has

61
increasingly contributed its might in building HMT into an organisation to reckon with. Presently
Tractor Business Group is part of HMT Ltd., the holding company of HMT Group.

HMT rolled out its first 25 HP tractor in collaboration with Motokov of erstwhile Czekoslovakia from
its Pinjore plant in the state of Haryana.The success of the 25 HP tractor in Indian conditions led HMT
to indigenise the 25 HP in a short span of five years.

And that was just the beginning...

The passing years, saw the needs of the Indian farmer change. Farm mechanisation was growing at a
rapid pace and called for more powerful and multi-role tractors.

HMT stepped in by introducing tractors that met the specific needs of the agricultural sector. HMT
manufactures a wide range of tractor from 25 HP to 75 HP. Keeping in tune with HMT's philosophy of
introducing innovative products and continously upgrading its tractors with better technology, these
models incooporate contemporary technology viz. fuel efficient engine meeting emission norms, floor
gears, direct axle, latest styling giving value for money to its customers.

HMT's Tractor Project commenced its operations from Pinjore in June 1971.This unit is the main unit
today fully integrated with foundry, manufacturing, assembly and testing facilities for 20000 tractors
and engines. Beside, assembly unit at Hyderabad (Andhra Pradesh,India). The Tractor unit is certified
with ISO 9001 Quality Standards.

6. INTERNATIONAL TRACTORS LIMITED

International Tractors Limited was incorporate on October 17, 1995 for the manufacture of Tractors and
has since then built a distinct position for itself in the Tractor industry. ITL is manufacturing various
Tractors of Sonalika brand between 30 H.P to 90 H.P, and CLASS brand between 70 hp to 90hp. The
tractors manufactured by company have secured a reputation of performance, quality and reliability in
the market because of their maximum pulling power, minimum fuel consumption and low emission. All
this makes ITL one of the top five tractor selling companies in India. These tractors are also exported to
various countries including South Africa, Australia, Zimbabwe, Sri Lanka, Canada, Bangladesh,

62
Algeria, Zambia, Senegal, Ghana etc.

ITL has entered into strategic alliance with YANMAR of Japan for joint manufacturing tractors in India.
ITL has a marketing arrangement with TATA International for development of selected South American
and African market. The company’s marketing efforts are promoted by dealer network of 600, and 450
subdealers. Such a networking has enabled the company to grow like a well-knit family whose roots lie
in its customers, who have providing constant feedback and support to allow the company to turn their
dreams into products.

They are also manufacturing tractors, meeting norms of Smoke & Mass Emission, Tested and certified
by ARAI, Pune. United States Environmental Norms Agency, Washington DC has also certified our
Engines. These certifications enabled SONALIKA Tractors to enter into world Market. All the Models
of Tractors and Combines Harvesters manufactured by us are tested & approved by central Farm
Machinery and Tractors Training & Testing Institute, Bundi (MP) India, (the Government of India
Institute authorized for issuing test reports).

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 CHAPTER II
REVIEW OF LITERATURE

64
CHAPTER II

REVIEW OF LITERATURE

This chapter in the research is the most essential one. It provides the second hand information that is the
information from secondary sources that help the researcher in the research. The literature referred by
the researcher and the findings implied in the research are mentioned and written under this chapter.
This chapter gives a brief review of some of the researches conducted. In my research I used secondary
data for information. The review of my literature is as follow:-

Ali (2006) in his study consumer response to promotional schemes has concluded that market has been
flooded with promotional schemes that are essentially meant to existing customers loyal which give an
essence of consumer retention. An analytical approach has been proposed to make a comparative study
of the schemes as well as to study the response under some well known schemes. As there are large
number of schemes like collect the points and win prizes , Discount coupons , Free offers , test drive ,
test ride in case of Automobile sector . but consumer response is different in different situations . The
study showed that discount / price cut schemes directly reaches and consumers are satisfied with these
schemes.

Bureau, from article “structural constraints” in equity master.com, 11 may 2002 found that India is no.1
in the terms of irrigated land area, second in the arable lands and seventh in the total area. The one way
to improve productivity is to increase the level of mechanization. In this article they look at the growth
prospects of the tractor industry and how it is closely correlated with the Indian agricultural sector
consider the size of tractor industry. The tractor market has more than double in the current decade. The
first half of the decade was characterized by aggregate volume of growth of more than 14% p.a. over
production and unremunerable pricing strategies followed by some of the lead players also affect the
overall growth of the sector. India is on rank 4 in the tractor market in overall world and second in terms
of volume of tractors. Punjab and Haryana are on top of the list in tractor market

65
Bureau, from article “Automobiles” in myris.com (2000) concluded that nine companies mfrs. Tractors
in the country. Sales are however, concentrated in the 20-50 hp segments owing to the small size of the
land holding in the country, M&M is industry leader in terms of tractor. For range 41-50 hp, Escort is no
.1 and M&M is on second place. India has about 8 tractors per thousand hectares v/s the Asian average
of 14. Potential demand for tractors is consequently large with growth in agricultural output and
productivity.

Bureau, from article “Indian tractor industry to see flat growth this year”, Zee news 8 Jan 2009
concluded that the Indian tractor industry in 2008-09 is unlikely to register growth and sales are likely to
be at 3 lac tractors same as what was achieved in 2007-08. Mahindra sold 92000 tractors in last year and
exported 8000.

Bureau, from article “Tractor maker claims record export sales”, Indiaforums.com 19 Apr 2009
concluded that ITL which sells tractors under the sonalika brand claimed it has achieved highest export
sales among all mfrs. In the country during 2008-09. The company posted export sale of Rs.105 Crores.
An increase of over 262% over the previous year. it had earned Rs .40 crores from export in 2007-08

Diwan & Jain (2004) in their study brand positioning: The unbeatable weapon in present market
scenario concluded that right positioning can beat the competition because today the markets are flooded
with clones or sea of homogeneous products. Only way to cross this sea is to create and communicate a
distinctive image which makes the customers convinced to choose the brand over the competitors brand.
An Effective brand positioning strategy includes the needs of customers, product category, target
segment, competition, benefit, perception and brand personality. All this help in raising brand value.

66
Kathirvel (2009) in his study on satisfaction level of farmers towards production marketing of
agricultural product concluded that 47% of farmers are not satisfied and 49.2% of farmers are neither
satisfied nor dissatisfied and only 3.8% are satisfied from the marketing of agricultural product and
majority of farmers are not in favour of using new techniques for cultivation (98.6) only 4.4% using new
techniques of cultivation. The size of farm directly affects the output of agricultural product and when
landholding increases the satisfaction also increases. The govt. can pay attention by providing
transportation facilities, maintaining good roads and providing subsidies for fertilizers so that small and
medium farmers may be benefitted.

Kaushik (2004) in her article now come outsourcing of tractors – MNCs drive exports by 18.5%
concluded that the tractors sales up and now exported to foreign market and also at good rate of 18.5%
increase annually. Eicher group, the exports of tractor last year grow to 16100 unit from 13581 units in
2002-03. Some of new MNC entrant SAME deutz fahr also has plans to develop India as an Export Hub.

Seth (2009) in his article in livemint concluded that tractor exports excluding production at 2009 due to
recession in foreign market, in this fiscal year tractor demand in India have been 303882 units which
represent a growth of 5% over the previous year. According to Chaudhary who is also the President of
Industry body Tractor Mfrs. Association, estimates domestic tractor sales will grow between 5-8% in
fiscal 2010.

Shrinivasan(2000) in her article Indian Tractor industry is ready to face the Chinese threat concluded
that 75% of Indians are involved in agriculture sector still it seems they are being neglected . other than
Haryana and Punjab , intensity of mechanization is also very low due to some lending norms the policy
makers will take into account the fact that the tractor is a multi utility vehicle and therefore the revenues
of a tractor owner are going to come in not from land of his own but also through contract farming or
hiring of land for production

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Valson (2001) in his study on tractor industry, segmented into four categories based on engine horse
power less than 30hp, 31 to 40hp, 41-50hp and more than 50 hp. historically the 31-50 hp segment
contribute to over 50% of the market owing to the demand from the northern state of India and finded
some factors that drive the demand for tractors in India like agricultural production and govt.
procurement price directly affect the demand of Tractors. Same as in the case of monsoon and credit
policies of bank also directly affect the demand of tractors. Some change factors occurred in other states
like Gujarat, the gross irrigated area has increased from 27% in 1989-90 to 335 in 1996-97. Now
companies take stress on 50 hp tractors instead of small tractors and second hand tractors also attracted
the demand of tractors in mind of consumers due to their Competitive price for same segment.

CHAPTER III
RESEARCH METHOLDOLGY
68
OBJECTIVES OF THE RESEARCH

 To study the customer awareness regarding sonalika tractors.

 To study the different parameters influence the customers in purchasing of the tractor.

 To study major market leader among various market payers.

 To study the satisfaction level of the customers with their existing tractors

3.1RESEARCH METHODOLOGY

Research can be defined as a scientific and systematic search for pertinent information on a specific
topic. According to Clifford Woody research comprises defining and redefining problem, formulating
hypothesis or suggested solutions; collecting, organizing and evaluating data; making deductions and
reaching conclusions and at last carefully testing the conclusions to determine whether they fit the
formulating hypothesis.
Research methodology is a way to systematically solve the research problem. It may be understood as
the science of studying how research is done scientifically.
69
3.2 Research design
A research design is the arrangement of conditions for collection and analysis of data in a manner that
aims to combine relevance to the research purpose with economy in procedure. In fact, the research
design is the conceptual structure within which research is conducted; it constitutes the blueprint for the
collection, measurement and analysis of data. One may split the overall research design into following
parts:

a) The sampling design which deals with the method of selecting items to be observed for the given
study.

b) The observational design which relates to the condition under which the observations are to be made.

c) The statistical design which concerns with the question of how many items are to be observes and
how the information and the data gathered are to be analyzed.

d) The operational design which deals with the techniques by which the procedure specified in the
sampling, statistical and observational design can be carried out.

Need for a research design

Research design is needed because it facilitates the smooth sailing of the various research operations
thereby making research as efficient and possible yielding maximal information with minimal
expenditure of effort time and money. It stands for the advance planning of the method used or adopted
for collecting the relevant data and the techniques to be used in their analysis, keeping in view of the
objectives, time and money.

The research design for my research is descriptive as well as exploratory.

Data sources:

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The task of data collection begins after a research problem has been defined and a research design has
been chalked out. While deciding about the methods of data collection, the researcher should keep in
mind two types of data:-

1. Primary data
2. Secondary data.
The primary data are those data which are collected afresh and for the first time, and thus happen to be
original in character. The secondary data on the other hand, are those which have already been collected
by someone else and which have already been passing through the statistical process. The researcher
would have to decide which sort of data he would be using for his study and accordingly he will have to
select one or the other method of data collection. The methods of collecting primary and secondary data
differ since primary data are to be originally collected, while in case of secondary data the nature of data
collection work is merely that of collection and compilation of information collected through various
newspapers, magazines and internet etc. In this research, I follow both the method of data collection.
 This research involves both primary and secondary sources of data collection.
 The information was collected and assembled from various websites, newspaper and magazines.

Research approach
The approaches mainly opted by the researcher to get the result include behavioral, survey, focus group,
observational, experimental approaches etc.

For conducting this research the main approach used was survey approach i.e. interviewing the
consumers.

Research instrument
The primary data was obtained during the course of doing research in a systematic manner with the help
of questionnaires and interviewing peoples.

71
Questionnaire method: this method of data collection is quite popular, particularly in case of big
enquires. In this method a questionnaire is sent to the persons with a request to answer and return the
questionnaire. A questionnaire consists of a number of questions in a definite order on a form or a set of
forms.
The questionnaire used by me for the purpose of data collection was of structured type. It was designed
keeping in mind the research problem which included close ended questions. The questionnaire was
given to the respondents who were expected to read and understand the questions and write down the
reply in the space meant for the purpose in the questionnaire itself.

Sampling design
A sample design is a definite plan for obtaining a sample from a given population. It refers to the
technique or procedure the researcher would adopt in selecting items for the sample.
Sample design may as well lay down the items to be included in the sample i.e., the size of the sample.
Sample design is designed before data are collected. There are many sample designs from which a
researcher can choose. Some design is relatively more precise and easier to apply than others.

Population
Population refers to part of universe from which the sample for conducting the research is selected.
Universe and population can be same in some researches. It may be finite or infinite. In finite universe
the number of items is certain, but in case of infinite the number of item is infinite i.e., we cannot have
an idea about the total number of items.The population for my study is different respondent from
villages and nearby Hosiarpur.

Sampling unit

Sampling unit refers to smallest possible individual eligible respondent. In my study the sampling unit is
single individual user of tractor.

72
Sampling size
This refers to the total number of respondents selected from the universe to constitute a sample. The size
of the sample should neither be excessively large, nor too small. It should be optimum. An optimum
sample is one which fulfills the requirement of efficiency, representativeness, reliability and flexibility.
The sample size for my research is hundred respondents.

Sampling techniques
In this research study, non-probability convenience sampling is opted for. Convenience sampling is done
purely on the basis of convenience or accessibility. This sampling method has been mainly chosen
because of time, financial constraints and lack of expertise.

Sampling frame
Frame is the list of respondents i.e. list of all the users of different tractors
Statistical analysis
Data will be analyzed with the help of frequency distribution, percentages and other suitable statistical
tools.
Classification and tabulation transforms the raw data collected through questionnaires and personal
interviews into useful information by organizing a compiling the bits of data contained in each of the
hundred questionnaires i.e., observation and responses are converted into understandable and orderly
statistics for further analysis and interpretation.

Following applications of statistics are used to organize and analyze the data:
 Simple tabulation of data using tally marks.
 Calculating the percentage of the responses.
Formula used:
Percentage= (number of responses/total responses)*100
 Graphical analysis by means of bar graphs and pie charts.

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Data Analysis and Interpretation

For the purpose of analyzing, raw data was summarized in a master table and from this table the results
have been carried out. The questions having multiple/alternative choices. In case of ranking questions
the total score has been added and final ranking is given. In case of checklist questions the average of
total no. of responses was calculated. In case of explanatory questions, the general suggestions were
summarized.

LIMITATIONS TO THE RESEARCH

 As the data will be collected through questionnaire, there are chances of biased information
provided by the respondents.

 The survey is limited only to Mukerian tehsil. Hosiarpur Distt.

 As the sample size is small compared to the total population the outcome cannot be
generalized.
 The study was done for a short period of time, which might not hold true over a long
period of time.
 The area is too vast to research and the entire picture may be vary if sample should be
increase.
 Respondents are basically villagers they usually not take more emphasis on these
questions.

74
 CHAPTER IV

DATA ANALYSIS
75
 AND INTERPRETATION

4.1 DATA ANAYSIS AND INTERPRETATION

Data analysis is an important part in any of the research as it fulfills the purpose for which research is
made. In this chapter analysis of every question asked from consumer through the questionnaire is done.
In this part of my study the analysis of data is done from the basis of information collected through the
questionnaire with the help of table and graphs.
TABLE 4.1
Brand owned by the targeted consumers of tractors
Brand % age
Sonalika 6
Escort/ford 30
Mahindra & Mahindra 28
Tafe/Massey 20
Swaraj 14
John deere 2

76
 35
30
30 28

25
20
20
14
15
10
6
5 2
0
Sonalika Escort/ford Mahindra & Tafe/Massey Swaraj John deere
Mahindra

FIGURE -4.1a

INTERPRETATION
From our research on the tractor users we find that mostly people owned the Escort tractors and
Mahindra & Mahindra tractors.

TABLE 4.2
PURPOSE OF USING THE TRACTOR

Agriculture % Industrial % Loading/unloading %

94 4 2

77
 0

2 1

Agriciulture
Industial
Loading/unloading
47

FIGURE 4.2a

INTERPRETATION
In our study on comparative analysis, we find that most of the people using tractors for agricultural
purposes and some of the users using tractor as loading and unloading of sands, bricks etc like thing and
some small entrepreneurs using for industrial purposes.

TABLE -4.3

78
 MAIN COSIDERATION WHILE PURCHASING TRACTORS

Consideration % age
Price 4
Performance 90
Quality -
Brand image 6

100

90

80

70

60

50

40

30

20

10

0
Price Performance Quality Brand image

FIGURE – 4.3a

INTERPRETATION
The main consideration of buying the tractors is performance they not bother about the price as shown
above on the figures and same in case of brand image and quality because performance automatically
deals with quality.

TABLE 4.4

79
 HORSE POWER OF TRACTORS

30-40 40-50 50-60

28 40 32

30-40 HP
40-50 HP
50-60 HP

FIGURE 4.4a

INTERPRETATION
Generally people uses the tractors between 40-50 horse power range due to less cost of these tractors
and less expenses on maintenance near about 32% respondents uses more than these limits but about
40% using between above said limits.

TABLE4. 5
COST INCURRED ON TRACTORS

80
Cost % age
2-4 lacs 28
4-6 lacs 64
>6 lacs 8

Cost

2-4 lacs
4-6 lacs
>6 lacs

FIGURE
4.5a

INTERPRETATION

Around 54% respondents using the tractor costing 4 to 6 lacs and 28 % respondents using 2 to 4 lacs
range tractors. Very few from our sample space using tractor costing more than 6 lacs

TABLE 4.6
AWARENESS LEVEL OF SONALIKA TRACTORS

81
Awareness level % age
Yes 100
No -

Awareness level

Yes
No

FIGURE 4.6a

INTERPRETATION

Almost all the respondents are aware of the Sonalika tractors. They know about the brand of these
tractors they basically like DI 740 III.

TABLE 4.7
SOURCE OF INFORMATION ABOUT SONALIKA TRACTORS

Source of information % age

Newspaper -
Television 4

82
Displays 42
Social network 32
Dealers 22

45

40

35

30

25

20

15

10

0
Newspaper Television Displays Social network Dealers

FIGURE 4.7a

INTERPRTATION
The respondents basically know from the displays and their social network like relatives and friends.
Respondents are less aware about the ads in newspapers.

TABLE 4.8
FACTOR OF DISTINCTION AT THE TIME OF THE PURCHASE OF THE TRACTORS

Factor Of Distinction % age

Price 4
Promotional scheme 6

83
Engine performance 70
Technical advancement 20

factor of distinction

20% 4% 6%

Price
Promotional scheme
Engine performance
70% Technical advancement

FIGURE 4.8a

INTERPRETATION
Basically the respondents like the engine performance at the time of the purchase of tractors only 4 %
people go for the prices.

TABLE 4.9
BRAND PREFERANCES BY THE RESPONDENTS

PREFERENCE % AGE
Sonalika 24
Farmtrac/ Escort 40
Mahindra & Mahindra 20
Eicher 2

84
Swaraj 8
John deere 6

40

35

30
25
20
15
10
5
0
Sonalika
Farmtrac/
Escort Mahindra &
Eicher
Mahindra Swaraj
John deere

FIGURE 4.9a

INTERPRETATION

Around 40% people preferred farmtrac/escorts tractors and 24% preferred sonalika and 20 % Mahindra
and Mahindra

TABLE 4.10
SATISFACTION LEVEL OF THE TRACTOR USERS WITH THEIR PRESENT TRACTORS

excellent satisfactory good poor Very poor

52 42 6 - -

85
60

50

40

30
PERFORMANCE

20

10

0
excellent satisfactory good

FIGURE 4.10a

TABLE 4.11
FUTHER EXPECTATION IN NEW TRACTOR’S MODEL

SPECIFICATION %age
GEAR SYSTEM 14
ENGINE EFFI. 26
ACESSORIES 16
HYDRAULICS LIFTMENT 10
MILEAGE 34

86
 35

30

25

20

15

10

0
GEAR SYSTEM ENGINE EFFI. ACESSORIES HYDRAULICS MILEAGE
LIFTMENT

FIGURE 4.11a

INTERPRETATION

Basically people want new modification in engine efficiency and mostly people go for developments in
mileage.

87
 CHAPTER V
CONCLUSION
&
SUGGESTIONS

CONCLUSION

Sonalika has various advantages over its competitors such as low initial cost, low fuel consumption,
high speed, low maintenance cost, & easy availability

As tractor is meant for pulling load, sonalika has all these qualities to pull maximum load due to high
backup torque

88
People prefer farmtrac / ford tractors as per our research study and people like engine performance as
the main consideration of purchasing tractors.

They basically affected by the displays in providing information regarding new products so company
should create some awareness regarding this and make some hording on roads to attract tractor users
with new features mention on it.

Respondents are basically from village sides so they are not affected by the newspapers, because in their
daily life they never spent time on newspaper and their purchasing decision followed by dealers, social
network and hoardings.

SUGGESTIONS

Through tractor market is highly competitive in India and Sonalika is relatively new brand. Hence
Sonalika need a strong positioning. As sonalika tractor is capable of pulling more load and unbeatable
and unchallengeable features. Sonalika must be positioned as a tractor, which is most economical and
ideal for heavy load work.

Product awareness:

89
For promotion of a new product awareness is most important factor. As all the farmers contacted are
aware of sonalika tractors and their features and specifications. This can be done through organizing
kisan melas, exhibitions and effective demonstration at village level.

Here opinion leaders can play a vital role. Opinion leader is a person whose opinion is given high weight
age by common people like sarpanchs. Company should also concentrate on this factor.

 Besides these points we would like to suggest few more things:

 More & more emphasis on R & D must be given

 Spare parts must be easily available for different models of tractors

 Become a cost leader in field of tractors

 Provide better after sale service to develop better relation with dealers

90
 BIBLIOGRAPHY

1. WWW.SONALIKA.COM

2. SEARCH ENGINE (GOOGLE AND YAHOO)

3. SONALIKA LIBRARY

4. MAGAZINES (INDIA TODAY)AND JOURNALS

5. NEWSPAPERS

91
 QUESTIONNAIRE

Name of the customer:

Contact Number:

1) Which brand of tractor you are currently using?

Sonalika Escorts Mahindra & Mahindra Tafe Swaraj

John Deere New Holland

Please Mention company’s particular brand name of tractor …………………………….

2) For which purpose you are using tractor?

Agriculture Industrial purpose Loading Unloading

3) During purchase of tractor what was your consideration?

Price Performance Quality Brand Image

After Sale Services Hydraulic liftment power Mileage Hp

4) How much horse power is it? Mention………………

5) What cost did you incurred to procure it?

2-4lac 4-6lac More than 6lac

6) Are you satisfied with the features provided by company in your tractor?

Yes No

If no then reason is ………………………………

92
7) Are you aware of sonalika tractors?

Yes No

8)If yes, how did you come to know about sonalika tractors?

Newspapers Television Displays Friends/Relatives

Festivals/Social functions Dealers

09) Is after sale service of this product is easily available to you in near market?

Yes No

10) Are you satisfied with after sale service provide by company?

Yes No

11) From which factor you feel that this company’s tractor is different from another company’s

tractors?

Price Promotional schemes Engine performance

Technical advancement any other specifies ………..

12) Rate your preferences among the different brands of tractors?

Sonalika Farmtrac Mahindra & Mahindra Eicher Swaraj

John Deere Ford Any other mention…………………………….

13) How has been the performance of your tractor?

Excellent Satisfactory Good Poor Very poor

14) What will you think that this tractor fulfill your all requirements?

Strongly Agree Agree Can’t says Disagree Strongly Disagree

15) What kind of development you want to have in new model?

93
 Gear System Engine Efficiency Availability of Accessories

Hydraulic Liftment Efficiency Mileage Any Other

Any suggestions

94