The construction equipment market in India has witnessed substantial growth over the past few years. The market is largely dependent on government investments, the political scenario and the type of infrastructure being developed.
Global scenario
The global construction equipment market is a cyclical market. The global economic crisis of 2008 led to a sharp decline in activity and recovery was not seen until 2010. Subsequently, the market saw synchronised global growth during 2016-18, and the growth peaked in 2018-19. However, the outbreak of Covid-19 led to a downturn in 2020.
Earlier, the market had been dominated by developed nations in Europe and North America. But after the global economic crisis, China invested significantly in infrastructure, as a result of which the Chinese market became a front runner in terms of growth. In 2019, China emerged as the largest contributor with a 28 per cent market share, followed by North America with 18 per cent, while India had a share of about 6 per cent. Going by construction equipment type, crawler excavators dominate the market with a 31 per cent share, followed by mini excavators with a share of 28 per cent, wheeled loaders with a share of 17 per cent, and backhoe loaders and telehandlers with a share of 7 per cent each. Crawler excavators and mini excavators together constitute about 60 per cent of global demand. Different markets have different demands for construction equipment: China prefers wheeled loaders and India prefers backhoe loaders, whereas in Europe excavators are used.
Before Covid, in 2019 the market forecast suggested a decline of 5 per cent in 2020 but it declined by about 11 per cent in 2020. Following the Covid-19 outbreak, China introduced enormous stimulus packages. Excluding China from the numbers, the decline is much steeper for the construction equipment market globally.
For the market to recover, long-term stimulus is required from the governments in addition to confidence building and job creation measures. Although some economic weakness is inevitable, the construction and construction equipment market should be relatively less impacted by Covid-19, given that it will continue once demand starts to recover. Nevertheless, the impact of the pandemic will be felt for some time. Overall, the policy response by the government will be critical, and India seems to be on the path of recovery.
Construction equipment market in India
The construction equipment market in India peaked in 2018, then declined in 2019 and even further in 2020 on account of the pandemic. There are a number of infrastructure gaps in the country that need to be bridged. The market started to recover from July 2020 onwards, and demand is currently at its peak on a monthly basis.
As mentioned before, every market has its own preference for equipment. The Indian market is dominated by backhoe loaders, which currently account for 42-43 per cent. However, demand for excavators is growing. Backhoe loaders are more commonly used in rural areas, whereas the demand for excavators is high in urban areas and in large projects.
Over the years, the demand for compact equipment has risen. India has been producing equipment domestically, and customers prefer local equipment. Till a few years ago, all the equipment produced in India was consumed within the country itself, so from 2002 to 2011, the production of construction equipment was lower than its sales. Going forward, with many industries being set up, now almost all manufacturers are focusing on exporting equipment from India.
The way forward
Infrastructure development is vital for GDP growth. It also generates employment opportunities. There is a lot of demand for public services across all sectors. Growth in the construction equipment market will be fuelled by increasing activity in the construction and mining sectors. Increasing demand will also lead to growth in equipment types, components and services. India is increasingly developing into a global manufacturing hub. The government is taking various initiatives for developing infrastructure in the country, with a National Infrastructure Pipeline outlay of Rs 111 trillion during the period 2019-24.
Some of the challenges that the country faces are high non-performing asset levels, protectionist policies, land acquisition issues, administrative and procedural delays, and the stressed balance sheets of construction companies. Thus, there is a need to improve project preparation, enhance execution capacity, and have a robust enabling environment with a strong dispute resolution mechanism.
In sum, the government is expected to continue its infrastructure investment drive, and the Indian construction equipment market is emerging as a regional export hub.
Based on inputs from a presentation by Samir Bansal, General Manager, India, Off-Highway Research, at Infrabuild India