A.M.Muralidharan writes about the challenges facing the Indian construction equipment industry and initiatives needed at this juncture to improve the situation while trying to gauge the future scenario.
The construction equipment industry is going to see a change in the coming years due to modifications in the infrastructure, construction and mining sectors in India.
India’s infrastructure industry has the biggest potential for growth and opportunities for investment. We see the construction industry on the rise and foresee a positive trend in equipment purchase with more players entering into the aggregate industry. Some factors that are currently driving the demand for construction equipment in India include heavy investments in various infrastructural projects by public and private enterprises in areas like road construction and maintenance, ports, power plants, telecommunication sector, urban infrastructural developments etc. There will be new opportunities to the industries when smart cities, clean India and fast train projects are implemented in India. Additionally, the entry of international and domestic players has led the market to open up.
Challenges faced by the construction equipment industry:
Today, the road construction equipment market stands at an industry volume of 2500 machines per year. This is currently growing at 5-7 percent, and expected to maintain that rate for the next five years. The sign for road construction segment is very promising with the Government planning to invest Rs. 10,000 crore and introduce external commercial borrowing.
However there are certain challenges that the construction industry has been facing for a long time now, which the new government has promised to address. For example, there has been a delay in infrastructure projects due to time and cost overruns. Shortage of funds, environmental concerns and delay in government clearances added to this. Project delays have been caused due to land acquisition challenges, in turn causing major investment deferrals by companies. There is also a lack of structured regulatory and policy framework for PPP models which needs to be addressed.
Another aspect to address is constant upgrade of technologies and method specifications along with introducing new technologies. Increasingly machines will have to be designed to give better efficiency in terms of fuel consumption and productivity.
Need of the hour:
We have been around 5-6 per cent of the GDP for many years; the government recognizes that and now we are moving towards 9 – 10 per cent of the GDP to be invested in infrastructure. I think apart from government investment lot of private investment is needed as well. The more the government invests; more the private players will also invest, which is a good sign for equipment manufacturers like us. Also, there has to be a business model for the contractors to execute and complete projects faster and hand it over back to the government and implement time bound projects.
If the market has to grow then the PPP, BOT policies, R&R, land acquisition with special reference to irrigation projects have to be immediately tackled by the new Government at the centre. Going forward, we will need to go in for technology agreements with the changing scenario. Further, demand for construction equipment is likely to increase with commencement of mega irrigation projects in Polavaram and hydel power project in Andhra Pradesh.
We believe that there is an evolution of business model and therefore a shift from Build Operate and Transfer (BoT) to Public Private Partnership (PPP). This is evident with the surge in PPP models with Government recently easing the norms for transfer of land allowing acceleration of infrastructure projects in sectors like railways, civil aviation and ports that are required to boost economic growth.
The new government has several plans this year to revive road sector projects and keep up their vision of building world-class highways across the country. It has also identified some key issues that have so far blocked road construction projects. The government is targeting to develop 8,500 km of highways in 2014-15, cost of which seems to have already escalated further. One other element that the government believes is very important is road safety and it is therefore studying internationally laid down norms and will adopt the best practices in the implementation of these projects.
(The author is President – Volvo Construction Equipment.)