Construction of roads and highways are ongoing projects globally, however developed the economy. With cities expanding and new heavy vehicles constantly being rolled in, roads need repairs and building up. The Indian government is working hard at making infrastructure development its prime priority.
“Recently, while unveiling the Indian Construction Equipment Industry Vision Plan 2030 “Building the Nation” through an online platform, Nitin Gadkari, Minister of Road Transport & Highways and MSME, said, “The government of India’s ambitious Rs 111 lakh crore National Infrastructure Pipeline (NIP), which has already been announced and actioned upon, augurs very well for enabling sectors such as the Indian construction equipment (CE) industry. I urge cooperation, coordination and communication with all stakeholders to improve product quality, drive innovation, and make the CE industry globally competitive.”
The minister pledged his commitment to support the interests of the Indian construction equipment industry and commended iCEMA and its members for their efforts in creating an action-oriented plan for growing the CE industry by three times the current size in the next 10 years. He informed that the government is continuously working towards providing world-class infrastructure across the country and urged the CE industry to capture this opportunity. He also stressed on the need for more productivity and cost efficiency to serve the needs of the growing Infrastructure sector.
Product quality along with cost competitiveness will enable the Indian CE industry to participate in global export markets for construction equipment. There is a need toconsider partnerships with leading academic and technical institutions such as the IITs and set up research centres to learn from and accelerate adoption of international best practices and technology. It would benefit everyone if the industry undertook R&D and drove innovations continuously to be at par with technologically advanced international brands. There is also a need to evaluate alternate fuels and ways the NHAI has driven several innovations in the construction of roads and highways.
Gadkari had also said that CE companies must evaluate localisation opportunities for both imported equipment as well as components to drive the Atmanirbhar agenda; and the need to be innovative on all dimensions of business, especially new business models and lucrative financing structures, which will lower the industry’s cost of investments.
Unstoppable!
Most construction equipment makers agree that there is a recovery happening in the Indian market. But all is still not well. Ramesh Palagiri, MD & CEO, Wirtgen India, says, “Going back to pre-covid levels, we are seeing a recovery in the past two months, but this is not adequate because most of the players in the CE industry have built capacities for growth. Most of them are also currently operating at less than 50% capacity, even with the increase what we had in the last couple of months. So, the main challenge continues to be demand not improving to meet the adequate capacities what has been built over a period of time.”
It is common knowledge that as far as the economy is concerned, infrastructure is one area which will drive growth, create employment and the government is already focused on this.
Dheeraj Panda, director, sales, marketing and customer support, Sany Heavy Industry India, says, “As the CE industry is facing many headwinds and slowly recovering from the impact of the pandemic, it looks tough for players to get back businesses to the old normal. However, the easing restrictions are seeing shoots of revival. One needs to find a strategy to gain investor and buyer confidence through timely deliveries with enhanced quality standards. The government has also made efforts to inoculate the construction and infrastructure sector through projects and initiatives, which did boost demand. But businesses can’t depend solely on the government initiatives, organisations too will have to remain in sync with the times.”
In order to get back to the old normal, Sany India has signed MoUs with leading banks and NBFCs to extend financial support to customers and launched a series of new products in both excavator BU & heavy equipment BU along with new attachments like ripper, pile driver, auger & rock breakers.
However, in the last few months, MoRTH has led the way by increasing highway contract awards for about 7500 km in first nine months, more than double last year corresponding period, despite the pandemic. Jaikumar Kamath, head, road machinery business, Larsen & Toubro, says, “The Union Minister Gadkari has mandated 60 km per day as the target for executing road building as against the current rate of 30 km per day. NHAI has also helped improve cash flows of contractors by releasing monthly payments. Construction of national highways has almost reached last year’s levels and demand for new equipment has surged. Hydraulic excavators, wheel loaders, and compactors have seen demand.”
The next steps
ICEMA has made certain demands to the government. The apex body, in its Vision Plan 2030 document, envisages India to be a major exporter of construction equipment. Arvind K Garg , executive VP & head, L&T, presented recommendations of this document to the Minister recently. Remarkably, Indian companies have a deep knowledge of the local market, while MNCs have easy access to low cost funds and technology.
Panda says, “They have also asked for urgent price regulation measures as rocketing steel prices are becoming a major hurdle for the recovery process especially for SMEs. Manufacturers like us depend on the government for ensuring a stable operating ecosystem and building a strong foundation for technology and skill upgradation. These recommendations along with export incentives, if adopted, will increase demand for CE manufacturers across the board.”
iCEMA also requested for inclusion of the CE industry in the Production Linked Incentive (PLI) scheme, which will give a big boost to the Industry and its stakeholders. iCEMA members opined that this, together with many other recommendations in the Vision Plan, will propel India to becoming the 2nd largest CE market in the world and also the fastest growing in the next ten years.
iCEMA envisages the Indian CE industry to achieve this vision through an action-oriented 8-point agenda that has been drawn up in consultation with BCG. It will work towards implementing the agenda with the participation of key stakeholders, including the government of India.
A spanner in the works
Though the prices of raw materials, specially steel, are going up constantly in recent years, the period from June to December has seen a sharp increase. This has dealt a severe blow to manufacturers irrespective of the volume of business, which was already affected due to the pandemic. Palagiri says, “This will definitely hamper the revival of the economy which is already struggling due to pandemic situation. For now, the OEMs in India are compensating for some of the increase in steel prices but can do so only to an extent.”
The rising raw material prices are a major concern to CE supply chains. Panda says, “While a few players may adopt new strategies for adjusting this price rise in the longer run, it can prove to be lethal for the industry’s recovery process, as it is just emerging from the preceding pandemic crisis. It is quite likely that the increased costs will be passed down to the already reluctant customer. It will also affect the companies’ cost competitiveness in the global market. Thus, this price rise will also prove to be a major hurdle for the industry’s ambitious Vision Plan of 2030. However emphasis on localization and sourcing the raw material locally can somehow help in combating the situation.”
Even Gadkari has expressed concern at this development. Kamath says, “Steel price increase has an impact on the infra/manufacturing sector as this has a cascading effect on the value chain. Companies will try and pass on the increase to customers, which has an inflationary effect on execution. This increase in price of steel, cement and petroleum products lead to cost overruns for infra projects and make it difficult for projects to remain financially viable. The price hike of steel could vary from 4-6% for different product categories in a phased manner.”