Sales of construction equipment remained largely flat in the first quarter of the ongoing fiscal year, after posting robust growth the last two fiscal years, hurt by a slowdown in the award of road construction projects and subdued demand due to general elections.
While industry body Indian Construction Equipment Manufacturers’ Association (ICEMA) has yet to release sales data for the quarter ended June 30, the industry estimates about 24,000 units have been sold during the three-month period, similar to the volume reported in the same period last fiscal year.
Senior industry executives estimate sales of construction equipment, widely regarded as a barometer of economic activity, to remain sluggish this year.
While the election impact had hurt first-quarter sales, the rainy season when construction activity dwindles is likely to keep demand subdued in the rest of the first half of the ongoing FY25. The industry though expects the budget to have provisions that would benefit the sector.
The National Highways Authority of India (NHAI) awarded contracts for just 4 km in the first three months of the current fiscal year as against 611 km a year earlier and 969 km during the April-June period of fiscal 2023.
The Ministry of Road Transport and Highways, in November 2023, said that no new liabilities would be created under Bharatmala Pariyojana Phase – 1 until a revised scheme was approved. As a result, the NHAI did not award a single mega highway project in the first three months of this fiscal year.
Sales of construction equipment in the local market rose 24% to 123,671 units in FY24. The growth was 29% in the fiscal year before that.
“The coming three months too will be challenging. Industry volumes may decline by 10-15% (in Q2) and for the entire fiscal year, achieving similar volumes as last year looks difficult,” said Sandeep Singh, managing director at Tata Hitachi Construction Machinery.
Besides the fall in the award of new road contracts, a slowdown in the release of payments for infrastructure projects too has affected demand, industry watchers said. “Release of payments to contractors/sub-contractors for infra-related projects has been delayed in Q4FY24 as well as Q1FY25 on account of state as well as national elections. Contractors/sub-contractors were on a wait and watch mode and purchase decision for tippers (commercial vehicles segment) as well as construction equipment was subdued till the end of Q1 and is likely to pick up post announcement of the budget,” said Jagannarayan Padmanabhan, senior director and global head of consulting at Crisil Market Intelligence and Analytics.
Singh of Tata Hitachi said the roads ministry is looking at measures to speed up awards of roads projects and the momentum should improve in the second half of the year.
The ICEMA had a meeting with transport and roads minister Nitin Gadkari recently and has been assured of positive interventions.
In the interim budget presented in February 2024, finance minister Nirmala Sitharaman increased the capital allocation for infrastructure development to a record Rs 11.11 lakh crore for FY25. Overall, India has set an ambitious aim of spending Rs 143 lakh crore to develop infrastructure over seven fiscal years through 2030, double of the Rs 63 lakh crore spent in the last seven years since 2017.
This has prompted construction equipment companies to raise their bets on the country’s growth prospects, mid-term. “Our estimate is that the Indian market will grow 2-3 times by 2030. Not only that, with the direction that the government has set when it comes to sustainable power solutions related to the electrification or use of alternative fuels, India will lead the way,” Dimitrov Krishnan, managing director at commercial vehicle maker Volvo CE India, said in an earlier interaction.
India is the world’s third-largest market for construction equipment, after the US and China.
