by Vivekanand Vanmeeganathan, President of ICEMA & Managing Director, Caterpillar India
India is undergoing significant change in its infrastructure, driven by government investments and sustainability initiatives. The Union Budget for FY23 has emphasised investment in infrastructure, illustrating the government's commitment to creating world-class infrastructure. The critical components of this transformation are the PM Gatishakti National Masterplan and the INR 111 lakh crore National Infrastructure Pipeline (NIP), which are essential for developing multi-modal infrastructure and reducing costs, aligning with India's goal of achieving a $5 trillion economy.
The Indian Construction Equipment (CE) industry is crucial in this transformation. The CE sector saw substantial growth in the fiscal year 2022-23, with a 26% increase in sales, elevating India to the third-largest CE market in the world. This growth was driven by a 29% increase in domestic sales and a 3% increase in exports.
India is the third-largest construction equipment market globally. Notably, by volume, nearly 90% of CE products have already achieved over 50% indigenisation. However, to meet the higher indigenisation, certain considerations must be taken into account.
Impact of the ‘Make in India’ initiative
CE sector takes pride in Shaping India’s Tomorrow. The remarkable growth of the CE sector is primarily attributed to capacity that all manufacturers have built in over decades in alignment to "Make in India" initiative. The industry has been proactive in making significant efforts to boost local capability for this sector, which has increased domestic value addition. Currently the higher volume products have high local content as much as 80% , while low volume products have relatively low level of indigenisation level. As the industry grows the there would be a need to embrace higher capacity, technologically advance product which needs a significant investment in the ecosystem to build both capacity and capability. With the sustained momentum on CE sector, the industry is well poised to sustain the local content for the products that are currently imported or having low local content.
Policy measures to support sustained demand creation
The government's policies have played a critical role in promoting local manufacturing and driving sustainable growth in the CE sector. The government has planned significant allocations to various ministries, such as the Ministry of Road Transport and Highways and the Ministry of Ports, Shipping, and Waterways, indicating its commitment to developing and enhancing roads, ports, and waterways infrastructure. Infrastructure would continue to play a vital role in propelling the economy and ICEMA provides equipment’s that shapes India’s tomorrow. With significant investment in NIP, GMP, NMP and NLP there is going to be an ongoing infrastructure development which would drive sustained demand. Moving forward as infrastructure needs keep growing, there would be a significant shift towards technology adoption which would mean not just a mere growth in CE equipment but also a growth in technologically advanced equipment which will be better Solutions which are Safe and Sustainable. On top of it, futuristically there needs to a 2047 infrastructure road map that needs to be evolved for the country which would serve as a blue print for sustainable demand creation for the CE Industry.
Robust ecosystem for R & D and Innovation
In recent years, India has seen a significant surge in research and development investments from the government and the private sector. The state-of-the-art manufacturing technologies used by CE manufacturers in India are at par with global standards, and locally manufactured equipment is being exported to major markets such as the EU, the UK, and the US. Many global players have a big R&D workforce serving the globe from India. India has already got a robust capacity for R&D. It is important that the country leverages the available R&D to drive innovative solutions for infrastructure building. A strong collaborative platform needs to be created between the industry and the stakeholders which include policy makers to embrace technology for all infrastructure programs.
Vibrant component base
The Indian construction equipment industry has significantly benefited from a solid component base, which has reduced its dependence on imports and improved its competitiveness on a global scale. This has resulted in an impressive 60% increase in construction equipment exports during FY22, with earthmoving equipment significantly contributing to this growth. To meet the growing demand for construction equipment components and embrace new technology, we need to encourage investment on not only capacity but also technology adoption which will not only make our industry efficient but also drive competitiveness globally to compete in a large market where our play is very small as compared to peer group of countries. PLI has seen driving the development of capacity and new capabilities in various sectors and it has proven to be very effective which can be leveraged here for CE component sector too.
The Road Ahead
India has a significant opportunity to strengthen its manufacturing capabilities and attain an best in class local content target by 2030. While the CE industry boasts world-class technologies and manufacturing processes, it still grapples with a notable challenge – low competitiveness, lack of adequate technology, its dependence on imports for performance parts, precision components, hydraulics, and electronics.
India must establish a resilient supply chain operating ecosystem to overcome this challenge. This system should focus on eliminating disruptions in the supply chain, increasing localisation levels, and ensuring the maintenance of world-class quality standards while optimising procurement and operational costs. By addressing this issue, the CE industry can further advance its self-reliance and competitiveness on both the domestic and international fronts.
