The construction equipment industry plays a crucial role in stimulating economic development and contributes significantly to the GDP by enabling infrastructure development. Government support in the form of various initiatives such as the National Infrastructure Pipeline (NIP) and the PM Gati Shakti Master Plan have opened up a range of opportunities in the construction sector. The increased focus on building domestic manufacturing capacity under the “Make in India” initiative also bodes well for the construction equipment industry.
In recent years, the construction sector has faced and surmounted many challenges. Hence, while charting the growth of the sector, it is crucial to outline the comeback strategies that have contributed to sustaining the sector’s growth momentum.
Macroeconomic headwinds
The construction equipment industry went through a challenging time in 2021-22 owing to the second and third waves of the Covid-19 pandemic. The pace of road construction – a major demand driver for the sector – decreased from 37 km per day in 2020-21 to 29 km per day in 2021-22. Moreover, construction in southern India was impacted by cyclones and excessive rainfall. Supply chain disruption was another key issue that impacted the industry’s ability to meet demand. The mandatory transition of the industry to CEV-IV emission norms imposed additional cost pressures on original equipment manufacturers (OEMs). Input price hikes caused by the rising costs of steel and other commodities added to the challenges for manufacturers.
Due to these factors, in 2021-22, there was a significant decline in both sector growth and equipment sales. Despite a massive growth of 60 per cent in exports, the construction equipment industry witnessed an 8 per cent decline during the year, with sales of construction equipment dropping to 85,385 units from 92,470 units in 2020-21. The earthmoving equipment segment, which, on average, accounts for a major portion of sales, recorded a sharp decline of 14 per cent.
Factors aiding revival
For 2023-24, the government has proposed a capex of Rs 10 trillion, which is 33 per cent higher than the budgeted expenditure of Rs 7.5 trillion in 2022-23 and twice the actual expenditure of Rs 4.26 trillion in 2020-21. This increased focus on infrastructure development has given the construction equipment industry hope for recovery.
Moreover, the growth of the construction equipment industry is linked to demand drivers such as road construction, irrigation, urban rail development and mining. These sectors are among the government’s high-priority areas. During 2022-23, one of the key growth drivers for the construction equipment industry was the increased pace of road construction. In May 2023, the pace of road construction touched 50 km per day. Meanwhile, the demand for mining equipment such as high-capacity excavators, motor graders and dozers also increased owing to a significant hike in coal production (due to a greater focus on power generation), which rose from 782 million tonnes (mt) in 2021-22 to 892 mt in 2022-23.
The centre’s focus on construction across sectors ahead of the general elections will help the industry sustain its growth in 2023-24. As per JCB India, rural India is leading the revival of the industry, with around 65 per cent of construction equipment being sold in rural areas, and over half of it to first-time buyers for niche projects such as the construction of ponds and rural roads. Various ongoing projects under the Pradhan Mantri Gram Sadak Yojana (PMGSY) are also driving demand. Additionally, the PMGSY received its highest budget allocation of Rs 796 billion in 2023-24. The construction of airports, railways, ports and metros is also supporting the growth of the construction market.
Tracking sales growth
In the pre-pandemic year (2018-19), equipment makers reported sales of around 98,000 units. Demonstrating resilient recovery after the pandemic, the industry grew by 26 per cent and recorded sales of 107,000 units in 2022-23, following a decline of 8 per cent in 2021-22. The positive growth was powered by a 29 per cent rise in domestic sales and a 3 per cent increase in exports.
The growth momentum continued in 2023-24, with the second quarter recording the sale of 30,078 units. Of these, domestic sales accounted for 27,423 units, while 2,655 units were exported. The growth in sales can be attributed to the positive growth in all five major segments of the construction equipment industry. The sale of earthmoving equipment rose by 23 per cent, road construction equipment by 65 per cent, material handling and material processing equipment by 66 per cent each, and concrete equipment by 47 per cent. Additionally, in September 2023, month-on-month overall construction equipment sales increased by 22 per to 11,930 units from around 9,796 units in August 2023.
As per industry experts, with equipment sales rising by nearly a fifth during the April-December 2023 period, the total number of units sold by March 2024 is likely to be in the range of 125,000-130,000, breaking the previous year’s record.
Policy action needed
In July 2023, members of the Indian Construction Equipment Manufacturers’ Association (ICEMA) 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 OEMs. 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 Scheme to continue enjoying its intended benefits and exemption from the integrated goods and services tax and the compensation cess.
Scope for improvement
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 for research and development in advanced technologies, alongside the establishment of a technology roadmap, is also essential for the industry to become a global manufacturing hub.
In order to make long-term funding easier, the construction equipment industry should be granted priority sector status. Furthermore, the National Bank for Financing Infrastructure and Development (NaBFID) should be proactive in making long-term and low-cost funding more accessible.
The way forward
The Indian equipment industry, currently the third largest in the world, is expected to grow by 15-20 per cent in 2023-24 owing to rapid infrastructure development across the country, driven by massive governmental spending. Programmes such as the NIP, Gati Shakti and Atmanirbhar Bharat will boost demand further. The implementation of advanced technologies, such as internet of things and alternative fuels, will facilitate sustainable growth in the industry.
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 both quality and cost competitiveness to help the country become a global manufacturing and export hub for construction equipment.
Harman Mangat
