Vipin Sondhi, Managing Director and CEO, JCB India
The industry will have to address some tough challenges in the infrastructure and construction equipment sector to reach its full potential.
It is a cliché now that the infrastructure sector is a critical enabler for sustaining economic growth as well as for ensuring its inclusiveness. This alone could enable a two per cent growth in GDP. Efficient infrastructure underpins India's economic strength. Infrastructure investments can accelerate economic development in emerging markets like India. The latest background paper released by A T Kearney indicates that given the investments planned by our government, infrastructure spending is expected to grow from 7.2 per cent of GDP in 2012 to 9 per cent by 2017.
This is likely to spur the demand for the earthmoving and construction equipment (ECE), and if the industry's full potential is realised, the result could be a $16 billion to $21 billion industry by 2020. The ECE market is expected to grow by a healthy 20-25 per cent over the next few years to reach 330,000 to 450,000 units sold in 2020, from the current levels of about 76,000 units.
However, we will have to overcome few challenges to achieve this target within the stipulated time frame. Currently, infrastructure industry is dealing with multiple issues like project execution, monitoring and ministerial disputes.
Several reforms and projects have been now initiated by the government to put the economy back on the growth trajectory. Projects such as the upcoming Delhi-Mumbai industrial corridor project will also give a major boost to the infrastructure sector. It is one of the largest infrastructure projects undertaken in India, entailing an investment of $90 billion, covering an overall length of 1,483 km between the political capital and the business capital of India, Delhi and Mumbai. Moreover, setting up of the Cabinet Committee on Investments (CCI) to de-bottleneck and fast-track big ticket infra projects is certainly a positive step.
The Board is determined to clear infrastructure projects which are stuck due to issues like land acquisition or environment. So far, it has cleared 209 projects with an aggregate investment of Rs 3,84,203 crore. Very recently, CCI has cleared roadblocks for implementation of four big ticket projects.
The Prime Minister has shortlisted 215 major projects with bank funding of around Rs 7 lakh crore for the PMG to fast-track their implementation. Most of these projects are worth more than Rs 1,000 crore. Another one is the Draft Public Authority (settlement of disputes) Bill 2013 which seeks to set up an institutional mechanism that can provide speedy resolution of disputes related to public contracts, or public-private partnership (PPP) project.
There are some critical sector-specific issues which need to be addressed, especially if we are to realise the true potential of PPP. Firstly, the government should ensure that all projects are awarded to the private sector only after securing key sovereign clearances and the government should look at setting up an independent PPP Commission for PPP regulations.
Apart from that, there are few other issues that are also posing a problem for the Indian construction equipment industry, like lack of skilled manpower and financing, import of second-hand used equipment, etc.
Accenture, in its report, had estimated that over two million skilled personnel will be required for the maintenance and operation of construction equipment, not a small number and critical for holistic development. To effectively combat the shortage of skilled manpower, the Indian Construction Equipment Manufacturers Association (the ICEMA) has submitted its proposal to the National Skill Development Corporation (NSDC) for setting up a Sector Skill Council for the construction equipment industry. NSDC is also tying up with companies and setting up skill centres to bridge the gap of skilled manpower.
Original equipment manufacturers (OEMs) in India offer limited financing options, and payment terms for first-time users are often unfavourable. The result is that access to financing prevents many prospective users from buying. We have to ensure that OEMs take a more active role in making availability of financing an easier prospect for buyers. Setting up in-house financing arms or long-term tie-ups with banks and non-banking financial corporations (NBFCs) can also be considered.
Also, for restricting import of second-hand used equipment, I feel the government should look at restricting multiple port entry to avoid dumping of low quality used equipment. We should have a single or dual port entry system as it will allow us to better examine the machines on various parameters like safety, emission etc. ICEMA, with the support of its entire member body, continues to work closely with the government executives to formulate policies and regulatory framework that will help us in addressing these issues.
The challenges that we talked about are only short term ones. The industry will have to address some tough challenges in the infrastructure and construction equipment sector to reach its full potential. Kearney's background paper also mentions that five sectors (electricity, telecom, roads and bridges, irrigation, and railways, including mass rapid transit systems) account for more than 80 per cent of total planned spending.
Rural development (rural roads, irrigation) will also be a key growth enabler in the future. Over the past several years, the government has stepped up focus on rural infrastructure development covering housing, roads, irrigation, water supply and sanitation, under schemes like the Pradhan Mantri Gram Sadak Yojana (PMGSY) and Indira Awaas Yojana (IAY).
I am certain that the recent initiatives and reforms introduced by the government will increase the confidence level among the investors. The future will primarily depend on the successful implementation of these reforms. OEMs, industry association and the government need to work very closely to ensure the challenges are levelled out in time to realise the vision for the country's infrastructure.