According to the Indian Construction Equipment Manufacturers Association (ICEMA), the construction equipment industry is estimated at $3.1 billion (as of 2015). The increasing mechanisation of construction activities allows greater penetration of equipment such as backhoe loaders, crawler excavators, mobile cranes, mobile compressors, compaction equipment and wheeled loaders in the market. Though the demand for this equipment fluctuated from 2012 to 2015, the change of government in 2014 was a game changer. Despite positive sentiments, the results were only seen in 2016-17. The market is now back on track with optimistic growth numbers and an ever-increasing demand for equipment, especially crawlers and backhoe loaders.
Market size and growth
The three-year period 2009 to 2011 saw an upward trend in the sale of construction equipment. Sales increased at a compound annual growth rate of 20 per cent, peaking in 2011-12 to reach 73,340 units. After staying on a high growth trajectory till 2011-12, the market witnessed an unprecedented fall in demand for equipment and plunged to a low of 50,100 units in 2014-15 mainly due to policy paralysis.
According to the ICEMA, the market finally gained momentum 2015-16 onwards, recording a growth rate of 13 per cent, with sales of 56,540 units. Thereafter, in 2016-17, the segment achieved an exceptional gain of 25 per cent with a sale of 70,675 units. This high growth is attributed to many factors, such as the government’s higher allocation towards infrastructure development, the revival of stalled projects, faster clearances for projects, and relaxed foreign direct investment norms for construction development. The revival was driven mainly by the roads and highways sector which witnessed a pick-up in construction activity.
During fiscal year 2017-18, equipment sales as estimated by the Indian Brand Equity Foundation (IBEF) stood at almost 97,000 units. This phenomenal demand was fuelled by several factors. For instance, the New Metro Policy introduced in August 2017 pushed the development of urban rail projects; the introduction of the UDAN scheme created the need for new greenfield airports, and initiatives such as the opening up of public-private partnerships in the road sector increased project activity, thus pushing construction equipment sales. Moreover, in December 2017, the reduction in the ceiling of the goods and services tax (GST) levied on equipment to 18 per cent from the earlier 28 per cent also revived the sale of construction equipment.
In January 2018, the National Investment and Infrastructure Fund partnered with United Arab Emirates-based DP World to create a platform to mobilise investments worth $3 billion in ports, terminals, transportation and logistics in India. This will also drive the demand for construction equipment.
Crawler excavators and backhoe loaders continue to dominate the construction equipment market landscape. According to Off-Highway Research, in 2017, backhoe loaders and crawler excavators accounted for 43 per cent and 25 per cent of the total market respectively.
With increased government support, both fiscal and regulatory, the construction equipment market seems bullish in the long term. Major players including JCB, the Escorts Group, Tata Hitachi and others are witnessing a surge in sales post the reduction in GST. In the coming years, companies are planning to expand their product range to cater to the rising equipment demand. The rental equipment business, though currently in the nascent stage, is also gradually gaining prominence. This cheaper alternative to procurement of equipment by construction companies will also drive the equipment market going forward.