The intent of the Modi Government is crystal clear. A plethora of proposed projects in every vertical, to say the least, has rekindled great expectations. Thanks to the government´s focus on ´connectivity´ - be it rail networks, freight corridors, port connectivity, new highways, interlinking of rivers, creation of smart cities that connect major business hubs - the dream target augurs well for the construction equipment industry. However, the key lies in swift implementation.
How realistic is the target (of constructing 8,500 km during the current fiscal year) set by the Finance Minister? To achieve this target, we need to construct 35 km of roads everyday! Given the current average, which is a mere 3-5 km a day, and considering the liquidity crunch, challenges in terms of land clearances, highly stressed balance sheets of road construction firms, and the negative impact of stalled projects on them (over 260 projects amounting Rs 600 billion) in the road sector, the scenario becomes murkier. What the contracting fraternity is anticipating is that once they get a project, they want to execute it with no hindrance in between. Of course, this is an ideal situation; but we had such ideal situation, which was turned to a reality- Mumbai-Pune Expressway! We believe this is possible, but needs political will and determination as the Mumbai-Pune Expressway project has had. The government´s decision not to bid out any highway project without acquiring at least 80 per cent land for it is a welcome step.
However, the question whether we will be able to construct 30 km per day, the target set by the Union Minister of Transport and Highways in a two-year time period even at the optimum situations, is not answered. As per inputs from the industry, the maximum that can be achieved is about 25 km a day. Also, in line with our interactions with top road builders, almost all infrastructure companies are going through considerable pain, which needs to be alleviated before any revival can be commenced. In this context, it is heartening to note that the minister has done a review of stalled projects and assured intervention in projects by expediting land acquisition and clearances, putting in place speedy dispute resolution mechanism, and providing adequate comfort to lenders and thereby facilitating debt disbursement.
The immediate challenge before the CE sector is the market size, which has shrunk significantly in the last few years. Earlier, most of the original equipment manufacturers (OEMs) have built capacities anticipating the demand growth. However, with demand dipping considerably across the segments of equipment, idle machines without projects have become a big concern. That said, revival from a near grinding halt in the infrastructure sector will take a few quarters before it starts showing up a sustainable demand generation and growth.
The underlying demand for infrastructure development in India stays quite strong and unlocking the demand for construction equipment would be experienced with focused and timely execution of planned and declared projects supported by parallel progress in new project clearances, financial closures and timely government intervention for policy correction. Going by the track record of last two months since the new Government assumed power, things seem to be moving in the right direction.
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