Driven by increased activities in construction and mining sectors, the Indian construction equipment (CE) industry grew 17 per cent in 2017 to a new peak of 78,109 units. The government’s consistent drive to improve infrastructure will unquestionably facilitate further growth in the economy and put the CE industry on the growth path, says Rakesh Rao.
The Government has initiated various steps for accelerating infrastructure development and is focusing on putting India back on a growth trajectory after a period of declining GDP growth rate. According to Indian Construction Equipment Manufactures' Association (ICEMA), India's infrastructure sector is poised to grow significantly with the increasing demand for development of key infrastructure projects such as roads and highways; rural connectivity; railway expansion; urban infrastructure including metro rail projects; ports and airports; industrial corridors (like DMIC); smart city projects; etc.
“The infrastructure sector is today undoubtedly one of the strong pillars of the Indian economy and the Union Government is focused in its approach to develop infrastructure. The allocation for infrastructure development in the next financial year is targeted to increase from Rs 4.94 trillion in FY17 to Rs 5.97 trillion in FY18. As a percentage of GDP, the budgetary allocation has increased to 9 per cent in FY17 and the government aims to reach 10 per cent in FY18. All these factors will help in a positive effect on the infrastructure development,” says Vivek Hajela, General Manager and Head – Construction Equipment Business (CEB), Larsen & Toubro.
Sandeep Singh, Managing Director, Tata Hitachi Construction Machinery, adds, “Indian economy is on a fast track. Added to this is the Government's focus on infrastructure. After a lull of about three years, there is a boom in the construction equipment market. Investment and implementation of key projects along with corrective measures and industry friendly policies of the Government, we believe will greatly help the infrastructure development in our country. Several critical projects have been announced in the last year opening up new avenues for the construction machinery industry. All these have aided a surge in the demand for earthmoving and construction equipment.”
The government has laid a road map of activity in roads under the umbrella of Bharatmala and for port led development under Sagarmala with clear timelines & investment required. Daily execution of road construction has moved up from around 23 km/day in 2016-17 to 27 km/day in 2017-18. There is focus on increasing track capacity under railways as well as expansion under DFC; inland waterways; industrial area development under DMIC; river linking; rural connectivity, etc.
Samir Bansal, GM, India, Off-Highway Research India, explains, “India is a developing nation and has large infrastructure gaps that need to be plugged. Infrastructure development is a key economic driver and enjoys an intense government focus, which spurs the growth in demand for construction equipment. In addition, the policy and administrative decisions of the government are helping to speed up the pace of infrastructure development, which is led by the road sector.”
Demand drivers for construction equipment
In the recent years, the Union Government has announced several measures in the road, railways, ports and airports sectors to take the Indian infrastructure to the next level. Sandeep Singh elaborates, “The government has been allocating enough money in the budgets for faster execution of infrastructure projects. This has been further boosted by the recent success of the ToT (Toll Operate Transfer) bid for national highways developed under EPC. All these have been driving demand for construction equipment. There is continuous growth in investment in these areas over the next few years & hence we see that the demand for construction equipment to be sustained in the near term.”
To aid the economic recovery after the twin shocks of demonetisation and the Goods and Services Tax, Union Government increased allocation to infrastructure by more than Rs 1 lakh crore for financial year 2018-19 in the budget. “The government’s investment in infrastructure budget is positive for the sectors that Volvo CE serves such as road and railway construction, quarry, aggregates and irrigation. We expect continued strong growth in most of the segments we serve. While we are proud to support the Government’s Make in India initiative, the government is increasing the import duty from 10 per cent to 15 per cent for a range of parts and components, including for commercial vehicles, to help drive the initiative and generate additional revenues. This will directly impact our cost and businesses will have to make those associated pricing calls,” opines Dimitrov Krishnan, Vice President and Head of Volvo CE India.
GST and its impact
The year 2017 was a good year for construction equipment in India with the industry growing 17 per cent in 2017 to a new peak of 78,109 units. The surge in the demand resulted primarily due to increased activities in construction and mining sectors, informs Samir Bansal.
L&T’s Construction Equipment Business in 2017 recorded a growth of about 20 per cent across all its offerings. “We did well in our traditional products like excavators, dozers, motor graders and wheel loaders. We could also establish a sound footing for our newly-launched products under the road machinery business,” states Vivek Hajela.
While there has been significant push from the government in the infrastructure sector, implementation of the GST – a regime to apply one tax across all the States – was seen as a big positive for the industry. It also played a role in boosting volume growth. Vivek Hajela states, “GST introduction has been a boon for CE industry. It has made business operations simpler and faster for the customers as well as the manufacturers. Though we have some challenges initially due to higher taxation, it was quickly corrected and made reasonable.”
Initially, mining and construction equipment were placed in 28 per cent tax slab under GST, which was reduced to 18 per cent in November 2017. The move to cut GST rates on construction equipment has resulted in unprecedented demand for construction equipment in India. “Sales (in 2017) were boosted by pre-GST push by all manufacturers in mid 2017, as most construction equipment were put in 28 per cent slab, and subsequently after GST reduction to 18 per cent in November 2017, when the pent-up demand was released. Further, the industry has absorbed the GST system very well as it has immensely improved the ease of doing business in terms of uniform taxation and free movement of machines,” informs Samir Bansal.
Sandeep Singh adds, “Tata Hitachi sold nearly 8200 units of CE in 2017-18 with a growth of nearly 20 per cent. Last year saw the introduction of the GST in July. Considering the higher tax rate under GST and apprehension of other issues involving setoff etc, there was some preponement of purchase in June and hence June 2017 saw an all-time high sale for the industry. Q2 sales was lower than normal as the industry adjusted to GST norms. The government recognised capital goods as necessary infrastructure building force and reduced the tax rate in November from 28 per cent to 18 per cent. This provided impetus to the demand and it increased significantly over the next few months, leading to a significant growth overall for 2017-18.”
With the government making big investments in infrastructure (roads, railways, irrigation etc), companies expect sustained demand for their construction equipment. Vivek Hajela informs, “The sales of construction equipment has doubled over the last 4 years. This growth is attributed to the investments made in various high priority sectors. The spending for infra development has been growing from 6.5 per cent GDP to over 10 per cent of GDP in the current regime. We expect the demand
to be sustained with such initiatives by GoI.”
Equipment of varying technologies from very old to the latest machines are available in the country and the customer preference depends on the application and usage patterns. The market leaders offer a wide product range to cater to all segments, while some companies choose premium positioning strategies in terms of price, technology and productivity.
The industry is also gearing up to meet the next level of emission norms proposed by the Government of India. Samir Bansal says, “Government regulations currently mandate that all construction equipment vehicles (equipment that are registered with transport authorities) conform to Bharat III emission norms. However, these will have to conform to Bharat IV emission norms from October 2020 and non-conforming machines will not be allowed to be sold from April 2021. This will mandate a change in engine technology and would result in a price increase. However, there are still no prescribed emission norms for crawler/off-road machines.”
Meeting the changing needs
The construction industry is modernising and mechanising at a fast pace by adopting newer construction technologies as also due to shortage of trained manpower, driven by the tighter deadlines to complete the projects and to keep the construction cost lower.
Given this background, according to Sandeep Singh, the requirement of the customers on construction equipment manufacturers have
also been changing to keep up with the need. Some of these requirements are:
Lower cost of operation: The industry has been bringing in more fuel-efficient machines with optimisation of engine & hydraulics. Hence, mechanical controls have now been supplemented with electronic monitoring & optimisation with the introduction of auto idle, quick idle, and various power modes etc to meet the specific requirement of difference applications. Long drain oils have been introduced to reduce the frequency of hydraulic oil intervals. This also aids in conserving the environment.
Information status of CE:
With the world going increasingly digital, customer wants to have information access about the machine that includes utilisation, servicing status, location of the machine and health. Therefore, digital integration through various brand names have been introduced by manufacturers that gives the above status to the customer.
Training of manpower: Modern machines come with improvement in technologies and addition of various new features. Therefore, availability of skilled manpower to operate & maintain the machines is a challenge. Customers look to the industry – apart from their own courses – to get trained manpower to optimally use the machine. The industry, through ICEMA, has tied up with the government’s Skill India programme and, with the help of IESC, has introduced various operator training programmes to aid the availability of skilled manpower.
Customisation & flexibility for different applications: With tighter deadlines and increased demand for quality of work, mechanisation has increased & customers are looking for either customised machines or with various attachments to address the need for specific applications. Hence, machines are now having rock breakers of various capacities, long reach attachments, amphibious undercarriage, drills etc.
“To address the above requirements, Tata Hitachi has brought in the ZAXIS GI series of excavators capable of delivering high performance, comfort/aesthetics to operator with cutting edge technologies of a fuel-efficient Isuzu engine, HIOS hydraulics & CONSITE platform with telematics from Hitachi and adapted to tough Indian operating conditions. Similarly, the EX Super series of excavators offers a low cost of operation for the retail customers, hirers & first-time buyers with fuel saving features & ease of maintenance. Telematics has also been offered under Insite to make all the important machine related information to the customer,” says Sandeep Singh.
Telematics & more…
Increasingly, customers need to do more with less, that’s why many of them opt to monitor their fleet with telematics system. “CareTrack is a telematics system that gives equipment owners access to a wide range of machine monitoring information that can help save time and money. Apart from selecting our telematics systems, many customers choose our pavers because we only manufacture sensor pavers at Volvo. Regular pavers without sensors simply follow the undulations of the road base and are therefore unable to give a smooth finish to a paved surface. In turn, this affects the traffic flow of the highway and increases maintenance requirements in the finished road. On the
other hand, sensor pavers have intelligent operating technology that help control the machine in terms of mat thickness as well as the level of the mat and the grade required in the finished road,” says Dimitrov Krishnan.
The construction equipment manufacturing fraternity in India has introduced world class technologies and products in India which can meet the needs of customers/contractors and infrastructure companies who address the road sector. For example L&T offers products in the premium segment and its machines from the Komatsu are backed by state-of-the-art technologies and incorporate highly efficient engines. Vivek Hajela elaborates, “The premium-class excavators, dozer and grader markets are moving towards use of information and communication technology for machine tracking. Komatsu uses telematics that capture signals from the machines, and transmits operational data and maintenance alerts which machine owners, service providers and Komatsu can access on smart phones and laptops.”
To tap the booming market, companies are planning to introduce new products in the market. “While our sales is on a high growth trajectory, we are working towards introducing best-in-class technologies in the Indian market on Komatsu and L&T product. Our plan is to increase our basket of offerings to the customers by introducing new and cost-effective products through constant innovation as well as for new applications,” says Vivek Hajela.
Simialrly, Tata Hitachi is gearing up for a commercially launch of its new backhoe loader Tata Hitachi Shinrai, which was unveiled at EXCON 2017. “Made in collaboration with Hitachi Construction Machinery, Japan and Tata Technologies, this machine is sure to create disruption in the backhoe loader market,” says Sandeep Singh.
Outlook for construction equipment
In 2018, with the government’s infrastructure push, the industry expects to see strong demand for construction equipment. Dimitrov Krishnan says, “Earthmoving is such a fundamental part of construction that it’s no surprise that excavators and backhoe loaders dominate sales. However, we are currently seeing sales of road-building equipment pick up dramatically. Additionally, we are seeing the market in India maturing and companies recognise that specialist products deliver better productivity than generalist products. This is why sales of excavators are on the rise at the expense of the backhoes, which have traditionally been Indian contractors’ preferred machines. We definitely see that changing.”
Off-Highway Research is optimistic about the market growth in 2018 and forecasts it to grow by 15 per cent to 90,115 units. Most equipment types will witness growth, though the market will continue to be dominated by the six most popular products: backhoe loaders, crawler excavators, mobile cranes, mobile compressors, compaction equipment and wheeled loaders. Together these will account for 94 per cent of the market. Samir Bansal elaborates, “Importantly, demand for equipment that has sold only in small numbers in the past, such as mini excavators, rough terrain lift trucks and motor graders may increase considerably on longer term. Skid-steer loaders, rigid dump trucks, crawler dozers market will continue to fall in a range. Demand for less frequently purchased equipment such as articulated dump trucks, crawler loaders and wheeled excavators will be driven by specific orders.”
India’s potential is clear, and the drive to improve infrastructure and energy supply will unquestionably facilitate further growth in the economy and the construction equipment industry. “The government continues to place priority on building roads and bridges - allocating budget to build 35,000 km of road under phase one of the Bharatmala project, along with allocations for urban rail and airport expansion projects. The drive to improve infrastructure will unquestionably facilitate further growth in the economy and the construction equipment industry,” concludes Dimitrov Krishnan.
GST introduction has been a boon for CE industry. It has made business operations simpler and faster for the customers as well as the manufacturers.
Vivek Hajela, GM and Head – CE Business, Larsen & Toubro
Indian economy is on a fast track. Added to this is the Government's focus on infrastructure. After a lull of about three years, there is a boom in the construction equipment market.
Sandeep Singh, MD, Tata Hitachi Construction Machinery
Importantly, demand for equipment that has sold only in small numbers in the past, such as mini excavators, rough terrain lift trucks and motor graders may increase considerably on longer term.
Samir Bansal, GM, India, Off-Highway Research India
Earthmoving is such a fundamental part of construction that it’s no surprise that excavators and backhoe loaders dominate sales. However, we are currently seeing sales of road-building equipment pick up dramatically.
Dimitrov Krishnan, VP and Head of Volvo CE India