The tractor industry is headed for a price hike in the range of 3 to 3.5 per cent in the next two weeks.

Market leader Mahindra & Mahindra will announce its new prices around 2 April, while Eicher is planning its to make its announcement around March-end.

Others are observing the spiralling steel prices to figure out their pricing policy.

"The input cost of steel alone has gone up between Rs 15,000 and Rs 20,000 per tractor in the last nine to 10 months," R C Jain, president, Tractor Manufacturers' Association and chief executive, group affairs, Eicher, said

The industry has witnessed price hikes in the past 10 months of between Rs 3,000 and Rs 5,000 per unit, he added.

The refrain among manufacturers is that now the time has come to factor in the rise in steel prices.

Just emerging from a three-year downturn, the tractor industry finds its margins under immense pressure owing to the rising steel prices.

"We have now decided to go with a price hike," K J Davasia, executive director & president, farm equipment sector, Mahindra & Mahindra Ltd, told Business Standard.

One estimate is that last year steel prices went up by about Rs 10,000 per tonne. While the government has announced some excise and customs duty cuts, its impact is seen to be too marginal to really help the industry.

"The industry has been seeing a continuous rise in its input costs, but given the market situation it has not been able to raise its prices, but now given the way the steel costs are going, a price hike (for tractors) is inevitable," Mallika Srinivasan, director, Tractors and Farm Equipment Ltd, said.

K Ramakrishna of L&T John Deere, however, said that his company has not come to any price hike decision. "We have to see how the input costs move. At the moment we are comfortable," he added.

The Rs 6,000-crore (Rs 60 billion) tractor industry spent a good part of 2003 fixing its cost structure, rationalising its labour force, re-engineering, implementing wastage cuts.

"We shrunk our workforce by about 20 per cent," Davasia said, adding that they have been able to squeeze production costs by about two to three per cent. A lot of input substitution also helped snipe costs.

Escorts has reportedly been working towards shrinking its production costs by about Rs 7,500 per unit.

The entry of MNCs such as Renault throughout International Tractors and Same Deutz-Fahr has also made a dent in the individual market shares, though it is still very marginal. In all, the situation of over-capacity has taken a toll on the margins of the indigenous tractor makers.

A key initiative has been to bring down inventories. "We have brought our dealer stocks down to 1,500 tractors", Davasia told the media at the launch of M&M's turbo tractor -- Mahindra Sarpanch 595 DI Super Turbo, at Chennai on Monday.

A certain buoyancy has been restored in the industry in the wake of good monsoons last year, perking up sales in the last two quarters. The growth seen was anywhere between seven to 14 per cent, Davasia estimated.

Clearly emboldened, the industry feels compelled to join the price hike being considered in the other segments of the automotive industry. Maruti and Hyundai have already been talking about it in the passenger car segment.

Asked if a 3.5 per cent hike is enough to absorb the entire cost escalation, Srinivasan said, "That only the way the steel prices move in the coming months will tell."

The tractor industry is also focussing on exports now, expecting to close the year with a tally of about 18,000 to 20,000 tractors shipped out in the current year.