An equipment by JCB.
Rome wasn't built in a day! This expression best describes the snail's pace at which India's infrastructure development was advancing over the last five years, and its gradual rise back to a state of progress and a better future.
The country has patiently persevered in understanding the bottlenecks afflicting infrastructure â€“ the most critical component for India in order to realise its aspiration of emerging as a superpower â€“ and the government, along with industry stakeholders, has been working towards giving the sector a new lease of life, even as economic and policy factors play their respective roles.
Largely enabled by government will, infrastructural development finding its place in the country again has a direct correlation with manufacturers of construction equipment, commercial vehicles, related ancillaries and MSMEs. It enlivens a vast ecosystem, which creates jobs and generates GDP for the country.
The infrastructure industry did fairly well until 2007, before the global financial crisis the following year. Then, from 2011-12, the slump was more pronounced.
According to a report by ICEMA and Feedback Consulting, titled 'Building India@75 â€“ Indian Construction Equipment Industry', which was released at the CII EXCON 2017 exhibition: "The slump from 2011-12 levels was due to a mix of policy paralysis, land acquisition challenges and resultant implementation."
The impact was in turn felt by the Indian construction equipment (ICE) industry. The ICE sector logged sales of 49,760 units in 2007-08 (worth Rs 16,450 crore), zooming to a high of 73,340 units in 2011-12 (worth Rs 25,240 crore). Thereon, it fell to a low of 64,110 units in 2012-13 (Rs 19,710 crore), registering a deep drop of 49,700 units during 2014-15 (Rs 18,600 crore).
Similarly, in the medium and heavy commercial vehicles (MHCV) arena, 1,65,043 units were sold in 2012-13, which dived to 1,24,106 units in 2013-14. This slowdown was attributed to the ban on mining, fleet underutilisation, and woes related to resale.
Coming back to life
The next few years, however, saw structural changes in government policy, which also kick-started many development projects, including road and highway network expansion, port development, inland waterways, irrigation and canal construction, the UDAN regional air connectivity scheme, and so on.
"The Government of India has made infrastructure creation a major pillar for sustained growth and announced a number of projects in roads, railways, metro-rail, mining, irrigation, power and urban development, which are growth drivers for our industry," says Vipin Sondhi, Managing Director and Chief Executive Officer of CE giant JCB India.
One of the principle purposes of urbanisation is poverty alleviation by connecting the rural poor to the mainstream, and to create numerous long-term sustainable jobs.
"Over the next five decades, India will see urbanisation equivalent to what was seen in the last 5,000 years. The government has provided impetus to 100 smart cities, 50 metros, and corridors between Delhi and Mumbai. Such initiatives would be harbingers of growth, and on either side of the freight corridors, there would be rapid urbanisation," says Niti Aayog Chief Executive Officer Amitabh Kant.
In the Union Budget 2017, the Centre announced a massive push to the infrastructure sector by allocating $61.92 billion. Projects like Sagarmala, Bharatmala, Jal Marg Vikas, Smart Cities, AMRUT, Housing For All, Expressways, Diamond Quadrilateral, dedicated fleet corridors, and river linkages are a few infrastructure programmes across the country that are expected to accelerate demand for CEs in the coming years.
Road construction has expanded by over 40%. There is a necessity for hi-tech machinery and smart equipment that will help India leapfrog. Similarly, a lot of work is being done in irrigation, which is critical for agricultural growth in the country.
"Impetus is being provided for the Railways too, turning it into an advanced system in terms of safety, technology, facilities, and new rail corridors and high-speed trains," Kant says, adding that housing and electricity for all would boost the construction sector, which would go on to become one of the greatest growth drivers of the economy.
"Today, the government is the primary demand driver (67%) for construction equipment by its share of public works projects. However, when it comes to ICE purchase and use, the private sector is the main customer (89%)," says the report.
Engineering an empire
A proactive approach by the government to boost the economy has motivated CE and CV manufacturers to seek higher industrial growth. "Existing projects have taken off. Stressed contractors are being bailed out through a hybrid-equity model. Thanks to this, the government got its revenues back, while contractors benefitted too. The vision to build 10,000 km of road is possible. Today, 33 km of roads is being covered in a day, from 18 km earlier," Caterpillar India Country Manager and MD Vivekanand Vanmeeganathan says.
US-based Caterpillar or CAT as it is popularly known is one of the largest CE players in the country, competing with other leading players such as JCB, Tata Hitachi, L&T Komatsu, Sany, and Volvo CE, among others. In all, there are 27 medium and large CE companies operating in India, which have collectively, yet significantly, contributed to its infrastructure growth story. In fiscal 2016-17, the CE sector rose to a high of 74,990 units, valued at Rs 29,330 crore. During this period, a majority 67% of CE volumes were utilised for earthmoving applications, followed by concrete (11%), material handling (9%), road construction (8%), mining (4%), and a tiny fraction for material processing, the report informs. Of all CEs used in India, backhoe loaders and excavators contribute 60% of all volume sales, followed in fair share by compactors, pavers, cranes, concrete segment products (pumps, batching plants, transit mixers, etc), and so on.
"While demonetisation hit the sector, and GST had its own impact, July-October was a bad period for the industry. But the government has felt that construction and infrastructure are important, and hence, brought down the GST for our space. We can now hope to see an upswing in growth," Tata Hitachi Managing Director Sandeep Singh tells DH.
With a view that India must grow by 9%, the construction sector must grow by at least 30% in the long-term, states Kant, informing that GST for the CE sector has been brought down to 18%, from an earlier 28%. The Ministry of Heavy Industries has also implored the industry to seek assistance and benefits from the National Capital Goods Policy.
As concerns the heavy commercial vehicles space, much like its CE counterpart, it began to pick up again, with 2016-17 witnessing sales of 2,21,379 units. The tipper is the foremost HCV used in the infra sector. Tippers registered sales growth of 24% in 2016-17.
"The CV industry has gone through a lot of ups and downs in the last few years. There was a lot of disruption. But everything is behind us now. From demonetisation, to transition from BS-III to BS-IV, macroeconomic factors are on the positive side. The GST is also settling in," VECV MD and CEO Vinod Aggarwal says.
Make in India is playing a critical role in rapid industrialisation. At EXCON 2017, 925 exhibitors showcased their best technologies. In the last decade, the ICE space registered a CAGR of 7%, while this calendar year alone it is expected to double at 14%. The construction industry is headed for better days of a projected stable growth of 10% CAGR, over the next five years. The ICE market in sales value is likely to reach Rs 56,000 crore by 2021-22. The process to re-build India has commenced.