Sales of construction equipment — a barometer of economic activity — is expected to grow in strong double-digits for the second straight year to a record this financial year spurred by increased government spending on infrastructure development, ahead of general elections next year, said three of the country’s leading construction equipment makers.
Sales of construction equipment have risen by nearly a fifth since April and are likely to close the year at 125,000-130,000 units, breaching the previous peak of 107,779 units in FY23, said Dimitrov Krishnan, head of Volvo CE India.
Prior to this, construction equipment makers had reported record sales of 98,000 units in the prepandemic year of FY19.
“Among major markets (for construction equipment), while North America is still growing, China is a big problem with sales declining 50% this year. India, by far, is the fastest growing (one),” said Alexander Markov, vice president – CASE Construction Equipment,APAC and AME, adding, “The push towards infrastructure development is the cornerstone for growth in the country.”
The Centre increased capital outlay on infrastructure development by a third to a record INR 10 lakh crore in the current financial year, amounting to 3.3% of the GDP.
Third largest Market
While the allocation towards road construction was raised to INR 2.7 lakh crore, the outlay was additionally increased for building tracks, reviving 50 additional airports, heliports, and advance landing grounds to enhance regional air connectivity.
Overall, India has set an ambitious aim of spending INR 143 lakh crore to develop infrastructure over seven fiscal years through 2030, double of the INR 63 lakh crore spent in the previous seven years starting 2017, credit rating agency CRISIL said in a recent report.
This has prompted construction equipment companies to raise their bets on the country’s growth prospects.
“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,” said Krishnan.
India is currently the world’s third-largest market for construction equipment, after the US and China.
In fact, rural India is leading the revival story in construction equipment sector, said JCB India managing director Deepak Shetty. “More than 65% of our equipment is sold in rural areas. And as much as 65-70% of these are sold to first-time buyers. There are a lot of small projects in rural areas where our equipment is being used for construction of ponds, rural roads. There is a lot of work happening under Pradhan Mantri Gram Sadak Yojana (PMGSY), which is boosting demand,” Shetty said. JCB sells one out of every two construction equipment in the country.
Demand has also received a thrust from the government’s focus to speed up infrastructure development in the border areas. Shetty said: “There has been some demand for infrastructure development in border areas, particularly DGBR and BRO.”
Markov added, “India has taken radical steps in the last few years, which has not only opened up massive opportunities in the local market but is also making us look at the country as a manufacturing base. We plan to increase investments in enhancing both manufacturing capacity as well as our product range (here). Once the new products are in the market, every fifth construction equipment that we sell in the world will be from the country.”
JCB India and Volvo CE too are also working to grow exports from India. While Volvo CE currently exports 15% of its production out of India to markets in Southeast Asia, Africa, Latin America and neighbouring countries like Nepal, Bhutan, Bangladesh and Sri Lanka, JCB India has invested INR 1,000 crore in a new facility in Vadodara (Gujarat) to scale up exports to a quarter of its output mid-term, from about 15% currently.
Total sales of construction equipment (including exports) declined by 8% in the aftermath of the pandemic in FY22, before recovering and growing by 26% to 107,000 units in FY23. Sales of construction equipment in the local market have since recovered and are expected to cross the 100,000 milestone for the first time ever this fiscal.
