The Indian infrastructure sector is not slowing down anytime soon, given the government initiatives and market demand. This makes it a feasible environment for the growth of construction equipment, writes Andy Dhanaraj, Director - Sales, Caterpillar India.
The IMF's recent World Economic Outlook update pegged India's projected GDP growth for 2018 at 7.4 per cent, positioning India once again as the world's fastest growing large economy. The report also projects that this growth momentum will continue into 2019, reaching 7.8 per cent. These forecasts indicate that any economic slowdown arising from structural reforms taken by the government, such as implementing the GST or demonetisation, has bottomed out. India's economy is on a strong path
Focus on infrastructure
Though several factors may be attributed to this economic turnaround, one stands out - the government's continued focus on infrastructure investment and development. Since coming into power in 2014, the National Democratic Alliance (NDA) has placed infrastructure development on the top of their agenda for economic revival. This was first reinforced by the increase in the Budget outlay for infrastructure in 2015-16 by Rs 70,000 crore ($10.98 billion) as presented in the first full Budget by the Finance Minister in February 2015. In the following year, the government allocated Rs 2.21 trillion ($34.65 billion) for infrastructure, with a large chunk being allocated to the road sector.
This trend has continued year on year. In 2017-18, Rs 3.96 trillion ($62.09 billion) was allocated for the development and upgradation of infrastructure. As part of its new integrated infrastructure planning initiative comprising roads, railways, waterways and civil aviation, the government unveiled the largest-ever Rail Budget of Rs 1.31 trillion ($20.54 billion), an 8.26 per cent increase over the Rs 1.21 trillion ($18.97 billion) allocated in the previous year.
Several other reforms have also been undertaken by the government to address issues in infrastructure funding and development, including increasing access to long-term funding, introducing a legal mechanism for addressing project disputes, streamlining regulatory structures across sub-sectors and tapping additional financial resources for developing infrastructure projects.
If we retrospect on the year gone by, a key highlight for the Indian economy will be the announcement of a Rs 9 trillion ($141 billion) package to stimulate the economy. The package included a Rs 6.92 trillion ($108 billion) outlay for building 83,667 km of roads over the next five years, of which Rs 5.35 trillion ($83 billion) has been earmarked for the construction of 34,800 km of highways under the Bharatmala Pariyojana (BMP). The remaining Rs 2.11 trillion ($33 billion) will be spent over the next two years for the recapitalisation of public sector banks - essential to increase public spending on infrastructure.
Opportunities for equipment industry
The government's big push on infrastructure augurs well for the mining and construction equipment industry. The sector's outlook has been improving. As already witnessed, the demand for mining and construction equipment grew by over 35 per cent in the previous financial year (FY), overcoming four consecutive years of weak demand. In the first three months of 2017, a growth rate of over 20 per cent has been witnessed in the construction equipment (CE) industry. According to ICRA, the sector is likely to grow by 13-17 per cent in the current FY.
This, as anyone would have expected, was on account of the higher infrastructure spend, particularly in the road sector. Coupled with an investment in infrastructure that has increased equipment utilisation rate and demand for new equipment, the industry's outlook for the next two years is very positive.
Today, the main challenge is meeting the construction demands in the country. For instance, all future road projects, such as economic corridors and coastal roads have been brought under the BMP. Other projects under the BMP include roads providing international connectivity, border roads, roads connecting economically important nodes, greenfield expressways and the remaining National Highways Development Project (NHDP) works under the 1998 scheme launched by the then Prime Minister, Atal Bihari Vajpayee. The government had targeted construction of 41 km of road per day when it came to power in 2014. However, it has been able to only average 25 km per day. Given this performance, building 16,700 km of roads every year for the next five years to meet the 83,677 km target will be a big challenge for
Role of technology
At Caterpillar, we strongly
believe that technology has an important role to play in all construction projects, whether large or small. With this belief, we unveiled 'The Age of Smart Iron' in April 2016 at Bauma Germany, the world's largest construction industry trade show. 'The Age of Smart Iron' describes Caterpillar's strategy to be the industry leader bringing digital solutions designed to improve productivity, efficiency, safety and profitability for all our customers.
We are the world's leading innovator in iron and we want our customers
to benefit from our considerable experience and technology. Our technology has helped us in making sustainable progress possible in every continent for the last 90 years.
India is definitely the bright spot in our global market. We want to be part of the drive for infrastructure development here in India. To be able to do that, we continuously assess how and where our machines will be working over the long term here in India. Increasingly, that means identifying and developing technologies to help our customers succeed in India. With this in mind, we conceived the Caterpillar Enterprise Technology Strategy in 2011 and introduced in 2012. The strategy defines key technologies and areas of R&D investment necessary to meet customer needs and sustain Caterpillar's competitive advantage well into the future.
The strategy has started to pay off. It has differentiated us from our competitors, and has helped us move away from offering standalone equipment or machinery to our customers by allowing us to focus on offering end-to-end solutions by integrating technology such as 'Cat-Connect'. Cat Connect makes smart use of technology and services to enhance the operational efficiency of the machine being used. Using data from the technology-equipped Cat machines, this program provides our customers with a range of benefits - from cuttings costs and enhancing operational efficiency to improving safety of people and equipment to reducing risks in all projects, including road construction.
India has made significant progress in developing its infrastructure in the last five years. But the aspirations of the country requires much more to be achieved in the next five years. Caterpillar has been in India for over six decades and has been driving positive change in all corners of the country. Our machines are working around the clock from the construction of the 2,000 MW hydroelectric power project at Subansri in Arunachal Pradesh to the construction of tunnels, coffer dams, concrete gravity dams, Golden Quadrilateral or the national road corridors. As India gears up to build world-class infrastructure at a record pace, we look forward to partnering with all stakeholders in the infrastructure sector.