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Indian Construction Industry – Some Facts & Figures

The outlook for the Indian construction sector had seen sluggishness in new project investments and build-up in inventory of unsold apartments since FY 2012 however a turnaround is expected from FY 2016

FY 2016 is expected to register a modest 10% growth in revenue terms. While this is relatively low considering the over 30% drop since FY 2012, it is a hopeful sign of better days for the industry. Hopefully, this could be the start of a turnaround for the sector. This has been reflected in the expected uptake of 6% sales in FY 2016 in Construction Equipment Sales.

Industry Statistics

India remains an investment destination with huge potential given its large demographic base and the appetite for infrastructure spending. Affordable housing solutions on scale are inevitable. India is expected to see serious investments in power, transportation, airports and ports to fix its logistics deficit. The construction sector growth predicates the overall GDP growth rate and the government is driving policies in order to provide a fillip to construction and infrastructure activities.

The Indian Equipment Industry has been dominated by Backhoe Loaders and Hydraulic Excavators which form close to 60% of the overall Equipment sales of 49,700 units in FY 2015

The Indian construction equipment industry continues to be sensitive to the demand for Backhoe Loaders and Hydraulic Excavators. Backhoe Loader alone contributes to 43% of the overall sales by volume, is an India specific phenomenon. Backhoe Loaders in China accounts for hardly 0.5% sales while North America accounts 8.5% sales of their construction equipment respectively. Backhoe loaders is the equipment of choice as the market is a transformation from manual labour to mechanization. The trend seen across most customers are that they buy a Hydraulic Excavator within the first 5-6 years of purchase of the Backhoe Loader.

Equipment Sales

Earth Moving equipment is the dominant category which accounts to over 65% in volumes and 54% in revenue terms in FY 2015

This is understandable given the predominant usage of Backhoe Loaders and Hydraulic excavators.

FY 2015

The road and mining sector would continue to contribute to the growth of the equipment sector for the next few years

The construction equipment industry is edging its way back to the levels of four years ago. Our assessment is that the roads and earthmoving sector will lead the growth drive in the next 2-3 years. Major contribution by the other sectors like real estate, mining, railways, urban development will take till end 2016 to start yielding results.

However there are some sectors like Real Estate and Iron ore mining that is currently stagnant. New houses addition in FY 2016 has been much lower than in the past. There is mention of excess inventory (~0.75 million units) of upto 4 years sales in some cities.

Contribution by Sectors

The prospects are getting better for global practices like equipment leasing, rental and used equipment to become mainstream

Changing customer behaviour coupled with stressed assets could lead to industry evolution. India always has traditionally been an outright equipment purchase market for project requirements. This could change. Large contractors who earlier used to outsource only earthwork and other non-essential activity have begun sub-contracting more activities and modules. Consequently, leasing options with its attendant tax benefit opportunities is becoming more attractive

Direct employment by the construction equipment sector is over a million

The growth in the construction equipment has also led to the requirement of skilled operators, mechanics and supervisors. This has been one of the serious challenges for the industry. The industry provides employment to more than 830,000 Operators and Mechanics, who have largely been trained by OEMs and through on the job training programs over the years. Given that most workers in this sector would be main earners for the family and the associated impact on other allied sectors (repair shops, small scale manufacture, construction workers, etc.), the overall impact would be tenfold of the direct employment levels in the construction equipment sector.

With improving technology and higher emphasis on safety, there is a wide spread requirement for training institutes which could cater to skilling needs through a structure program including certification. The Industry association (ICEMA) along with National Skill Development Corporation (NSDC) and CII have instituted a Skill development program to cater to this need. The Infrastructure Equipment Skill Council (IESC) has already instituted 19 job roles for 8 products with another 20 more products on the anvil.

Indian Construction Equipment Manufacturers Associaton