Driving Demand

Sector-wise requirement for earthmoving equipment

The central government is serious about improving the pace of infrastructure development in the country. The targets set by the government are ambitious. These include constructing 15,000 km of roads in 2016-17, increasing coal production to 1 billion tonnes by 2020, and developing three additional rail freight corridors. A number of new programmes like the Sagarmala, Bharat Mala, Jal Marg Vikas and Smart Cities Mission have been launched to give infrastructure development the required impetus. In this context of infrastructure augmentation, some of the key sectors that will drive demand for earthmoving equipment are highways, mining, urban transport and railways.

Indian Infrastructure takes a look at the upcoming opportunities for earthmoving equipment manufacturers across key infrastructure segments…

Highways

The Indian highways sector offers the greatest opportunity to earthmoving equipment providers as compared to other infrastructure sectors. For 2016-17, the Ministry of Road Transport and Highways (MoRTH) has substantially increased the target for award and construction of national highways. It has set a target of 25,000 km of national highways to be awarded as against the 10,000 km awarded in the previous year (2015-16).

The construction target for 2016-17 has been set at 15,000 km as against the 6,000 km constructed in 2015-16. Of the total length of national highways targeted for award, 15,000 km will come under NHAI’s target and 10,000 km under the target for MoRTH and National Highways and Infrastructure Development Corporation Limited (NHIDCL). The construction target for NHAI has been fixed at 8,000 km while the target for the ministry and NHIDCL is 7,000 km. Meanwhile, about 12,500 km of highways are yet to be awarded under the National Highways Development Programme.

Further, over 10,000 km of roads have been identified for development in the Northeast  by 2020 at an investment of close to Rs 1.3 trillion. These involve the construction of 2,000 bridges and tunnels spanning 100 km by NHIDCL. During 2016-17, 54 projects spanning 4,270 km worth Rs 405 billion will be targeted for award.

According to India Infrastructure Research, the road sector will offer construction opportunities of over Rs 4 trillion till 2020. Thus, earthmoving equipment manufacturers will also be accorded significant opportunities. Of the total, opportunity worth Rs 2.2 trillion is expected to be created in the national highways segment and the remaining in the state highways segment

At the state level, the construction market looks promising with Uttar Pradesh, Maharashtra and Bihar remodelling big-ticket projects. There is also new demand for construction from states such as Telangana, Chhattisgarh, West Bengal and Odisha. For instance, the Telangana government has unveiled its plan of spending

Rs 120 billion on the development of road infrastructure and connecting all district headquarters to the state capital. Thus, these states will create opportunities for earthmoving equipment suppliers by pursuing their road development programmes.

Mining

With the government’s focus on ensuring transparency and certainty in policies, investment in the mining sector is projected to increase in the coming years. As per India Infrastructure Research, mining projects worth Rs 2,100 billion are at various stages of planning and implementation in the country. Also, with amendments to key mining legislations such as the Mines and Minerals (Development and Regulation) Act, 1957, the scope for developing new mining capacity in iron ore, bauxite and coal has increased manyfold.

In terms of mineral-wise mining projects, coal accounts for the maximum share in upcoming capacity, and aggregates about 708 million tonnes (mt) across 183 projects. The maximum number of coal mining projects (42) is in Jharkhand, while the maximum capacity (233 mt) is concentrated in Chhattisgarh. Other states with a significant share in the project pipeline are Odisha, Madhya Pradesh, Telangana and Maharashtra.

The maximum incremental production of coal is likely to come from Coal India Limited as it gears up to meet the government’s target of 1 billion tonnes by 2020, while production from captive coal mines is expected to witness the fastest growth. With over 90 per cent of coal production coming from opencast operations, demand for equipment such as loaders, crushers, dozers, dumpers, and conveyor systems will increase significantly. For bauxite and iron ore mining, Maharashtra has capacities of 500 mt and 250 mt respectively, and also offers a large opportunity for earthmoving equipment.

Hydropower

Most of India’s hydropower potential currently remains untapped. As of January 2016, the potential for large hydropower plants (above 25 MW) in the country was estimated at 145 GW. In the north-eastern region, over 90 per cent of the potential is yet to be developed. The Brahmaputra, Ganga and Indus river basins account for over 80 per cent of the estimated hydro potential, and over 50 per cent of the potential in the Ganga and Brahmaputra basins remains untapped. Arunachal Pradesh has the highest estimated potential of 50,064 MW, followed by Himachal Pradesh, Uttarakhand, and Jammu & Kashmir.

Following the floods in Uttarakhand in June 2013, the Supreme Court imposed a ban on the implementation of hydro projects in the state. The matter is currently sub judice. Meanwhile, the Ministry of Environment, Forest and Climate Change’s expert body recently gave the go ahead for a number of projects including the 171 MW Lata Tapovan and 24 MW Bhyunder Ganga projects. The opportunities for earthmoving equipment manufacturers in dam-based hydropower projects are immense. Going forward, equipment like backhoe loaders, dump trucks, etc. will be in high demand in this sector.

Railways

The Ministry of Railways (MoR) is focusing on capacity augmentation to improve passenger and freight infrastructure. It increased the plan outlay to Rs 1.21 trillion in the 2016 railway budget, which is 21 per cent higher than the plan expenditure in 2015-16. The MoR aims to commission 2,800 km of broad gauge lines during 2016-17. Meanwhile, 90 new projects at a total investment of Rs 1,261 billion, covering 8,432 km, have been included in the budget. These relate to new lines, line doubling, gauge conversion and metropolitan transport projects.

A landmark announcement in the budget was the proposal to develop three additional dedicated freight corridors (DFCs). The ministry has proposed the 2,328 km east-west corridor, the 2,343 km north-south corridor and the 1,114 km East Coast Corridor. Thus there is ample opportunity for earthmoving equipment manufacturers under the ongoing or yet-to-be awarded sections of the DFCs.

Meanwhile, according to the latest Pink Book, 2015-16, there were a total of 29 bridge-related projects worth over Rs 2 billion that were proposed to be taken up. These will also create significant opportunity for earthmoving equipment suppliers. In addition, setting up of multifunctional complexes (MFCs) and freight terminals, as well as redevelopment and upgradation of stations will generate huge demand for earthmoving equipment. Further, Indian Railways (IR) plans to set up 36 greenfield private freight terminals and five brownfield terminal projects. Moreover, 197 stations have been identified for the development of MFCs. IR also plans to redevelop seven stations, at Habibganj, Shivaji Nagar, Anand Vihar, Bijwasan, Chandigarh, Surat and Gandhinagar.

Ports

According to India Infrastructure Research, projects worth Rs 105 billion related to the construction of berths and container terminals are on the anvil at existing major ports. Of these, projects worth Rs 81 billion are at the bidding stage. In addition, the central government plans to undertake three major port projects in Wadhavan (Maharashtra), Sagar (West Bengal) and Colachel (Tamil Nadu). Moreover, as of December 2015, new non-major ports, at an investment of at least Rs 320 billion, are being developed by the states.

Under the Sagarmala programme, the Ministry of Shipping has identified 40 port modernisation projects and six locations for mega ports. The National Perspective Plan under the programme has also identified 27 clusters (nine energy, five materials and 13 discrete manufacturing) under the port-led industrialisation pillar and 14 projects under the coastal economic zone (CEZ) pillar. Of these, three CEZs each have been identified in Gujarat and Tamil Nadu, two each in Maharashtra and Andhra Pradesh and one each in Kerala, Karnataka, Odisha and West Bengal. These projects entail an investment of Rs 4 trillion. Recently, in May 2016, Indian Port Rail Company Limited awarded three rail connectivity projects worth Rs 387.1 million under Sagarmala. In addition, three multimodal terminals are planned to be set up at Varanasi, Sahibganj and Haldia under the Jal Marg Vikas project. All these projects will certainly augment the demand for earthmoving equipment.

Urban transport

Rail-based mass rapid transit systems have been the predominant mode of urban transport solutions. Both metro and monorail systems are proving to be suitable to overcome the issue of road congestion. Metro projects have led to an increase in demand for earthmoving equipment such as loaders and dozers, besides other equipment like cranes and tunnel boring machines.

With cities increasingly coming up with decongestion plans, the urban transport sector will continue to offer significant opportunity to construction contractors. As per India Infrastructure Research, as of May 2016, the urban rail sector has a total of 67 projects in the pipeline, comprising a network length of 2,610 km. The total value of these projects is estimated at over Rs 6.2 trillion. Overall, Uttar Pradesh is expected to witness the maximum network addition of about 495 km, followed by Maharashtra at 283 km and Delhi at 262 km.

Besides, the government’s flagship project – the Smart Cities Mission – will involve the development of 97 smart cities till 2020. So far, 33 cities have been identified for funding till March 2017. This mission will also provide significant opportunity to earthmoving equipment manufacturers.

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Conclusion

In the coming years, the government is expected to continue its focus on fast-tracking construction and mining activities in the country. The direct beneficiary of this will be earthmoving equipment manufacturers. The key types of equipment that are likely to witness higher growth in demand are backhoe loaders, crawler excavators, dumpers and other material-handling equipment, as well as road construction machinery.

Earthmoving equipment manufacturers need to augment their capacities and produce efficient equipment to leverage the upcoming opportunity. It is also important for them to provide integrated services, including schemes for after-sales maintenance. The government also needs to support the earthmoving equipment market by giving fiscal incentives, providing skilled manpower through the Skill India initiative, as well as promoting high-end technologies in construction equipment.

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