Sales of construction equipment — a key indicator of economic activity — increased last quarter, after more than halving in the preceding three months, on the back of increased government spending on infrastructure projects, especially road construction, the Indian Construction Equipment Manufacturers’ Association said.
Fast resumption and recovery of the road building programme of the government led to a surge in demand for compactors and hydraulic excavators last quarter, in spite of labour shortages at construction sites, association president Sandeep Singh told ET.
Sales of construction equipment had dropped 60% in the fiscal first quarter. The recovery, both sequentially and year-over-year, in the July-September period has helped reduce the fall for the first half of the fiscal year to 35%, the association said without separately specifying the growth in the second quarter. For the ongoing fiscal 2021, it had predicted sales to decline 8-10% compared with the more than 75,000 units sold in the last fiscal year.
“More than 3,900 km of highways were constructed in H1 this year,” Singh said, terming it a positive in the context of the lockdown that had interrupted construction in the busy period of April and May. Also, so far this year, more than 5,000 km of highway contracts were awarded, a 140% year-on-year increase, in spite of the lockdown, indicating the government’s focus on large-scale highway construction this year and beyond, he added.
The recovery in road construction activity also resulted in increased demand for stone aggregates, buoying up sales of equipment for stone quarrying and sand mining.
Good monsoons for two consecutive years helped increase demand for backhoe loaders in the rural market, which was further bolstered by the government’s focus on development of infrastructure in rural areas under the Pradhan Mantri Gram Sadak Yojana and the Pradhan Mantri Awas Yojana. Besides, contracts for coal mining as well as increased demand for iron ore, following last year’s auctions, have supported demand for mining equipment.
Singh added: “The relatively lower impact of the Covid-19 spread in rural India and natural social distancing at construction and mining projects have helped in rebuilding confidence of the stakeholders to move ahead in building infrastructure.”
Even as sales volumes are set to decline by 8-10% to 65,000-70,000 units in the fiscal year, the growth momentum is expected to continue. In 2021-22, the industry expects to regain peak sales of 95,000 units registered in FY19. The market for construction equipment at the time was valued at $7 billion.
“If you look at the current pace of recovery, it is clear that the government intends to focus on investing in infrastructure to power the sustainable recovery in the economy,” Singh said. “They have reaffirmed budgetary allocations are to continue and have further announced additional capex of Rs 25,000 crore over and above the Rs 4 lakh crore announced in the FY21 budget, plus a Rs 12,000 crore interest-free loan to states to spend on capex.”
He said major contracts for the Mumbai-Ahmedabad high-speed rail project have been awarded.
However, delayed project implementation and low adoption of mechanisation, along with long-term project finance availability, remain key demand-related challenges for the construction equipment industry. Further, Covid-19 has seen state government resources being increasingly used to addressing healthcare concerns, revenue expenses like salaries and pensions, and social welfare programmes. The drop in revenue generation — in spite of the additional room allowed for market borrowings — is a concern for funding sustained capex in the near term.
In the longer term, however, the $1.4 trillion National Infrastructure Pipeline is expected to be a key demand driver for the construction equipment industry.
Singh said: “The China market (for construction equipment) is in excess of 300,000 units, the North America market around 200,000 units. India at 75,000 units has a lot of scope to grow. We are hopeful that with greater government focus on investment in infrastructure and the right policies enabling scaling up of local manufacture, the industry can grow exponentially. One current estimate shows that we can aspire to be the second largest market in the world by 2030.”
