The increased emphasis on infrastructure development in India has led to a continuous increase in construction equipment demand. The government has proposed a capex of Rs 10 trillion in 2023-24, which is a 33 per cent increase from the budgeted expenditure of Rs 7.5 trillion in 2022-23 and a twofold increase over the actual expenditure of Rs 4.26 trillion in 2020-21. This focus on infrastructure development augurs well for construction equipment (CE) manufacturers.
The growth of the CE manufacturing industry is linked to demand drivers such as road construction, irrigation, urban rail development and mining. These sectors count among the government’s high priority areas. The growth potential of the CE industry is directly proportional to the amount of capex the government spends on construction activities. For instance, the Ministry of Road Transport and Highways (MoRTH) has announced plans to complete the construction of 310 national highways in 2023 by spending over 90 per cent of its planned capex by December 2023. Assuming MoRTH’s plans unfold as anticipated, the demand for CE is likely to rise in the short term.
According to MoRTH’s estimates, a capex of around Rs 992.73 billion was spent in the first three months of 2023-24, slightly lower than the Rs 1.02 trillion spent during the same period in 2022-23. Of this, around Rs 790.15 billion has been spent on highway creation under the Bharatmala Pariyojana. This has resulted in 2,250 km of highways being built during April-June 2023, up from 1,977 km in the April-June 2022 period.
Owing to the increased pace of construction, 611 km of projects were awarded during April-June 2023, down from 969 km in April-June 2022. Given this decline, it can be assumed that the centre is currently more focused on road construction, which will have a positive impact on the CE industry.
Sales trends
According to the Indian Construction Equipment Manufacturers’ Association (ICEMA), the CE industry recorded an overall growth of 26 per cent in sales volumes in 2022-23. The total equipment sales crossed the 0.1 million mark for the first time and touched 107,779 units during the year. The growth was powered by a 29 per cent rise in domestic sales and a 3 per cent growth in exports.
The enhanced pace of road construction observed in the second half of 2022-23, which resulted in a significant increase in demand for CE, contributed to overall growth. In the first quarter of 2023-24, the year-on-year growth in overall sales for the industry was largely due to the accelerated pace of infrastructure projects in the country, in addition to the increase in budgetary allocation.
Rental and leasing market
Renting versus buying has been a long-standing debate for this industry. This alone demonstrates that the rental business is growing gradually and has a promising future. In addition to this, in recent years, rental penetration has seen considerable growth in India. Given that this is a pre-election year, the government is expected to focus on faster project execution, which in turn is expected to result in an increase in demand for the rental and leasing market. The share of the rental market was less than 10 per cent at the time the Construction Equipment Rental Association was formed, but has grown to over 25 per cent in the past four years.
Innovative technology
The construction scenario across the infrastructure sectors has improved in terms of greater mechanisation and digitalisation of equipment. Tippers are now being geotagged, fuel consumption of equipment is being monitored, and the overall productivity has improved.
The use of advanced telematics has become increasingly important in the CE segment to facilitate effective remote monitoring and control of their equipment fleet. Intelligent control systems are also being installed in new CE to optimise work and increase efficiency. Highway projects with superior technical and design specifications are expected to drive demand for modern equipment. New emission norms (BS-V), which will come into effect from April 1, 2024, will lead to advancements in the industry as well. Furthermore, electric mobility options are being increasingly adopted. The demand for their commercial use is expected to increase in the coming months, owing to rising manufacturing costs due to the increase in fuel and raw material prices. In line with this, in 2022, JCB India introduced the industry’s first fully electric excavator, the JCB 19C-1E, at Excon, Bengaluru.
Growth drivers
One of the key growth drivers for the CE industry has been the increased pace of road construction. In May 2023, the
pace of construction touched 50 km per day. Additionally, the Pradhan Mantri Awas Yojana received its highest budget allocation of Rs 796 billion in 2023-24.
Owing to a significant jump in coal production (due to a greater focus on power generation) from 782 million tonnes (mt) in 2021-22 to 892 mt in 2022-23, the demand for mining equipment has gained momentum. Many state governments also intend to increase their capex in the coming years.
Furthermore, the National Infrastructure Pipeline (NIP) initiative, worth Rs 111 trillion and encompassing 7,400 projects across sectors such as roads, airports, railways and irrigation, is a major demand booster for this industry. It is to be implemented between 2019-20 and 2024-25.
Current challenges
A few of the key challenges that the sector faces are high commodity prices, currency fluctuations and labour shortages. Additionally, global supply chain disruptions caused by recent geopolitical crises have impacted the timely completion of projects. Progress has further been hampered by delays in land acquisition, utility shifting and receipt of environmental/government clearances. The heavy dependence on import of components also poses a hindrance.
Recent policy momentum
In July 2023, ICEMA members expressed concerns relating to the unauthorised export of construction equipment. Currently, the Customs Act, 1962 does not prohibit borrowers from exporting equipment without authorisation from original equipment manufacturers. ICEMA has brought this issue to the government’s attention and has sought remedial action, such as the issuance of a notification under Section 11 of the Customs Act.
It has also requested a relevant amendment in Section 65A of the Customs Act, to enable entities enrolled under the Manufacturing and Other Operations in Warehouse (MOOWR) scheme to continue enjoying the intended benefits and exemption from the integrated goods and services tax and compensation cess.
Industry recommendations
As per industry experts, a focused production-linked incentive scheme is essential to drive investments, indigenisation and competitiveness in the sector. In response to inflationary pressures and rising interest rates, a subsidised borrowing policy is needed to support borrowers with lower interest rates, easing their financial burden and fostering economic stability. The Centre’s support towards incentivising research and development in advanced technologies, alongside establishing a technology roadmap, is also essential for the industry in order for it to expand into a global manufacturing hub.
In order to make long-term funding easier, the CE industry should be granted “priority sector” status. Furthermore, the National Bank for Financing Infrastructure and Development should be more active in making long-term and low-cost funding more accessible.
The way forward
The equipment industry is expected to grow by another 15-20 per cent in 2023-24 due to rapid infrastructure development across the country, driven by massive governmental spending. Programmes such as the NIP, Gati Shakti and Atmanirbhar Bharat will boost the demand further.
The Vision Plan 2030 is a welcome step towards creating a conducive policy environment and bolstering governmental support. It has proposed an action plan, laying emphasis on quality, along with cost competitiveness, to help the country become a manufacturing and export hub for construction equipment.
Harman Mangat
