Financial Analysis of Custom Hiring Centres with Combine Harvesters

A Custom Hiring Centre (CHC) is only as strong as the financial case behind it. For CHCs equipped with a combine harvester – one of the most capital-intensive machines in modern agriculture – the numbers must clearly justify the investment before any entrepreneur, farmer group, or institution commits. Fortunately, when analysed through established financial metrics, a CHC with a combine harvester presents a compelling and profitable business case. This post breaks down the total investment involved, the recurring costs, the income potential, and the key financial indicators that together prove the viability of this model.

Why a combine harvester is central to a CHC 🔗

Harvesting is among the most time-sensitive and labour-intensive operations in crop production. According to NABARD’s model scheme on combine harvesters, delay in harvest directly affects both yield quantity and produce quality. A combine harvester solves this problem efficiently by combining three operations – reaping, threshing, and winnowing – into a single pass through the field. This reduces post-harvest losses, cuts the time required for harvest, and dramatically reduces dependence on manual labour.

For small and marginal farmers who make up roughly 80% of all land holdings in India, owning a combine harvester outright is financially out of reach. A CHC bridges this gap by making the machine accessible on a hire basis, while the CHC operator earns returns through rental income from multiple farmers across the season.

Data from the Indian Council of Agricultural Research shows that mechanisation levels for harvesting and threshing in rice and wheat already exceed 60%, underlining strong and growing demand for combine harvester services – precisely the market a CHC taps into.

Total investment in a CHC with combine harvester 🔗

Setting up a CHC that includes a combine harvester requires a well-planned initial capital outlay. The investment covers the cost of the machine itself, supporting implements, infrastructure such as a storage and repair shed, and working capital for the first year of operations.

Based on NABARD’s model CHC scheme, the total capital cost for a full CHC unit – including a tractor, power tiller, transplanter, self-propelled reaper, thresher, sprayers, and a 500 sq. ft. workshop shed – works out to approximately ₹15.50 lakh. When a combine harvester is added to this setup, the total investment rises significantly. For a wheel-type combine harvester alone, the machine cost is approximately ₹13.60 lakh (with 85% bank loan available), while a track-type combine harvester carries a capital cost of around ₹20.40 lakh.

In broader estimates that account for varying equipment configurations, research on CHCs for climate-smart agriculture places the total initial investment for a viable CHC in the range of ₹37 to ₹58 lakh, depending on the machinery mix and local construction costs. Bank financing typically covers 85% of the capital cost, with the entrepreneur contributing the remaining 15% as margin money.

Annual recurring expenditure 🔗

Once operational, a CHC incurs predictable annual costs that need to be carefully managed to maintain profitability. These recurring expenses include:

• Fuel and lubricants: A combine harvester consumes diesel at roughly 6-8 litres per hour depending on type. Over 700 hours of annual usage (including own-farm use and custom hiring), this translates to approximately ₹2.31-₹3.08 lakh per year in fuel alone.
• Repairs and maintenance: Maintained at approximately 12% of machine cost per year, this covers routine servicing, part replacements, and unexpected breakdowns – typically ₹1.92-₹2.88 lakh annually.
• Operator wages: A skilled operator and a semi-skilled assistant are required. Based on NABARD’s model scheme, wages for both together amount to approximately ₹1.16 lakh per year.
• Insurance and taxes: Calculated at 2.5% of machine cost per year, typically ₹0.40-₹0.60 lakh annually.
• Interest on loan: Interest on the bank borrowing constitutes a fixed cost during the repayment period, ranging from ₹1.70 to ₹2.55 lakh in the first year depending on the machine type.

Combining all heads, the total annual recurring expenditure for a CHC with a combine harvester works out to approximately ₹9.62-₹13.41 lakh per year at full capacity utilisation, as detailed in NABARD’s model financial workings.

Income potential from custom hiring 🔗

The primary revenue stream for a CHC is the rental income earned by hiring out the combine harvester to neighbouring farmers during the harvest season. Based on NABARD’s model assumptions, a combine harvester is used for approximately 650 hours per year for custom hiring, in addition to around 50 hours on the operator’s own farm – totalling 700 hours annually.

The rental rate for a wheel-type combine is approximately ₹2,000 per hour, generating an annual rental income of ₹14 lakh. For a track-type combine with a rental rate of ₹2,700 per hour, the annual rental income reaches ₹18.90 lakh. When income from other CHC equipment such as tractors, threshers, reapers, and sprayers is added, research indicates total annual CHC income can range between ₹15 and ₹22 lakh, depending on equipment mix and seasonal utilisation.

After deducting recurring expenses, the net annual income comes to approximately ₹4.38 lakh for a wheel-type combine and ₹5.49 lakh for a track-type machine – steady, predictable returns that sustain loan repayment and generate profit simultaneously.

Key financial metrics: IRR, payback period, and BCR 🔗

Three financial indicators are used to judge whether a CHC investment is truly viable: the Internal Rate of Return (IRR), the payback period, and the Benefit-Cost Ratio (BCR). Together, they give a complete picture of profitability and risk.

Internal Rate of Return (IRR) 🔗

The IRR measures the annualised rate of return generated by the investment. A higher IRR indicates a more profitable project. NABARD’s combine harvester model scheme reports an IRR of 46% for a wheel-type combine and 34% for a track-type combine. Both figures are well above the bank borrowing rate of 12.5%, confirming that the investment generates returns far in excess of its cost of capital. Research on CHCs in a wider agricultural context reports IRRs as high as 68% in certain models, reflecting the strong earning power of well-managed CHCs.

Payback period 🔗

The payback period is the time required to recover the total initial investment from net cash flows. Based on NABARD’s repayment schedules, the combine harvester CHC model recovers its capital within 3-4 years. Broader CHC research similarly confirms that CHCs recover their initial investment within approximately three years, after which the operation generates stable net income through the remaining operational life of the equipment.

Benefit-Cost Ratio (BCR) 🔗

The BCR compares the total present value of all benefits to the total present value of all costs, discounted at a standard rate (typically 15%). A BCR above 1 means the investment is worthwhile. For the CHC with a combine harvester, NABARD’s model reports a BCR of 1.17 for the wheel type and 1.12 for the track type. The broader CHC model that includes a combine alongside other equipment shows a BCR of 1.19:1. Research studies on CHC profitability have reported BCRs of up to 1.49, reinforcing that benefits consistently outweigh costs.

Net Present Value (NPV) and Debt Service Coverage Ratio (DSCR) 🔗

The Net Present Value (NPV) discounts all future net cash flows to their present value. NABARD’s model records an NPV of ₹10.18 lakh for the wheel-type and ₹9.80 lakh for the track-type combine at a 15% discounting factor – both positive, affirming long-term value creation. The Debt Service Coverage Ratio (DSCR), which measures the CHC’s ability to repay its loan obligations from operating income, averages 1.71 for the wheel-type and 1.43 for the track-type over the repayment period. A DSCR consistently above 1 means the CHC earns enough each year to comfortably service its debt.

Government support and financing structure 🔗

The financial case for a CHC becomes even stronger with government backing. Under the Sub-Mission on Agricultural Mechanization (SMAM), state governments offer subsidies of up to 50% on combine harvester acquisition costs, directly reducing the capital burden on the CHC operator. SMAM allocates approximately ₹1,000 crore annually toward mechanization equipment subsidies, with 60% of recent disbursements directed specifically toward small and marginal farmers.

Banks such as Canara Bank offer dedicated financing for CHC setup, covering tractors, combine harvesters, threshers, sprayers, and other farm implements. Eligible borrowers include individuals, firms, Self Help Groups, and Joint Liability Groups. NABARD allocated ₹2,500 crore toward rural mechanization financing in 2023 alone, benefiting over 50,000 small farmers with improved access to combine harvester services. These institutional support structures significantly lower the financial entry barrier for prospective CHC operators.

Broader economic impact of CHCs 🔗

Beyond direct financial returns to the operator, CHCs deliver measurable economic benefits to the farming community they serve. Research shows that mechanisation through CHCs significantly reduces cultivation costs, improves labour efficiency, and facilitates timely farm operations – contributing to enhanced cropping intensity and productivity.

Rising rural wages make this contribution especially relevant. Average rural wages in India rose from ₹380 per day in 2022 to ₹420 per day in 2024, making manual harvesting increasingly expensive. By substituting mechanical harvesting through affordable CHC hire rates, farmers protect their margins without having to bear the full cost of machine ownership.

Custom hiring centres also improve machine utilisation across seasons and crop cycles, which in turn supports fleet expansion and long-term operator profitability. For rural entrepreneurs and agri-graduates, this model offers a structured path to self-employment with a proven financial track record.

What do you think? Given that a CHC with a combine harvester can deliver an IRR of 34-46% and recover its investment within three years, what factors do you think most influence whether a CHC actually achieves these projections in practice? And with over 80% of India’s farmers holding small or marginal land, do you think the current pace of CHC expansion is sufficient to meet actual demand on the ground?

References

1. https://agritech.tnau.ac.in/banking/nabard_pdf/Farm%20mechanization/2.Model_scheme_on_combine_harvester.pdf
2. https://agritech.tnau.ac.in/banking/nabard_pdf/Farm%20mechanization/3.Custom_Hiring_Centre.pdf
3. https://www.researchandmarkets.com/report/india-combine-harvester-market
4. https://www.researchgate.net/publication/399129331_Custom_Hiring_Centres_for_Climate_Smart_Agriculture_Profitability_Performance_and_Policy_outlook
5. https://www.kenresearch.com/industry-reports/india-combine-harvester-market
6. https://canarabank.com/pages/scheme-for-financing-customer-hiring-centres
7. https://www.nexdigm.com/market-research/report-store/india-combine-harvester-market/