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Special Report | July 2012

The proposed move to regulate the import of used equipment is a welcome step

The move to regulate the import of used equipment is actually sending a signal to the market and the rest of the world that if you want to be in India you should be manufacturing in India and providing services and parts in India, says Glenville da Silva, Chairman, Indian Earthmoving & Construction Industry Association and Vice President - Business Development Asia, Volvo Construction Equipment. In a free-wheeling chat with Equipment India, Glenville throws light on the present crisis of the equipment sector and elucidates on the move of the government to regulate the import of used equipment. Excerpts from the interview.

How do you assess the performance of the equipment sector for the last two quarters?
The market has been flat for some products and for others the market has contracted. This quarter is going to be a contracted market, too. The conditions are not favourable for growth, and the whole sentiment is pretty much down. A lot of projects are announced but very few projects have really got into execution mode.

To rub salt into the wound, you have two globally reputed rating agencies giving negative rating.
The reports may not directly impact the industry but of course indirectly, it influences the positive sentiments of the market. After the reports, the stock market was down, and it going to add more pressure on those who depend on external borrowing which becomes more expensive.

How long do you think the negative sentiments will continue?
We are optimistic on the long-term growth, but talking about the short- term measures, I think it is all about the government getting into the action mode. There are so many reforms which are pending. For the last 18 months, we have not seen anything happening in this front. Quarter by quarter the sentiments keep going down. So what everybody is looking for are some concrete steps towards the reform process that can add a dash of optimism and bring the vibrancy back into the market.

What are the steps initiated by the association to counter this?
We have been talking to the concerned authorities in the government all the time and we keep giving recommendations and suggestions as to what can be done to stimulate growth. What we need now is action that can transform the current negative outlook.

What is your take on the govern­ment’s move to restrict import of used plant and machinery?
That is a right move from the government’s part. We have been talking to the government about this for many years now. What is happening today is the unregulated import of used equipment, which could be outdated and do not meet the current emission norms and safety standards, whereas the new equipment manufactured here in India conforms to the latest norms and regulations. This situation has a negative impact not only on the industry and could also lead to the possibility of India becoming a junkyard of yellow metal. So the proposed move to regulate the import of used equipment with certain norms and conditions is definitely a welcome move.

The report stress a point that the proposed move to regulate the import will safeguard the productivity and competitiveness of Indian manufacturers. Can you explain this point?
See, the point is, you need to have a level playing field. Equipment that travels on the road has to be certified by ARAI whereas the used equipment needs no certification at all. The equipment made in the country needs to meet safety and emission norms, take care of operator and site safety, will not pollute the atmosphere, etc. When you regulate the local manufacturers and at the same time, allow open access to whatever comes in, that is creating an imbalance. So, setting standards for all equipment across the country would really help the efficiency of the industry here.

What is your take on the proposed move of putting 75 per cent additional costs on the original value of machinery?
This aspect has not been clarified completely. My take on this is that the government is basically looking at encouraging local manufacture to create more employment opportunities & greater self-reliance in this key sector of the economy. We do it for the auto sector, and many global as well as domestic players have made investments in the country. So why don’t we do it for construction equipment sector, too?

To what extent has the import of used equipment adversely affected the earthmoving equipment industry?
The big issue is the import of used equipment for loading and lifting applications like cranes. These could create safety issues if import is not properly regulated and the equipment not maintained properly. So I think the proposed regulation can help the whole industry do better.

Is there any clarity on part of the government on what needs to be done?
A couple of things we have stressed in our interaction with the government were: one, to put restriction on the age of equipment imported; second, and more importantly, to regulate the entry points through certain specified ports so that tracking becomes easier. We have also suggested measures to ensure that the imported equipment conforms to the existing emission norms, or at least to the previous norms. All these were worth it and through these moves, we are trying to ensure that the equipment that come in can be used, is safe, productive and environmentally friendly.

The end-user segments argue in support of imports as there is cost competitiveness, more options and availability and accessibility to speciality equipment. What is your take on this?
In terms of cost competitiveness, I don’t think the argument is completely correct. India is perhaps one of lowest priced market in the world. Our analysis has shown that a the price point for a new piece of equipment manufactured and marketed in India is in many instances cost equivalent to a 2-4 year old piece of used equipment sourced from the global market.

As far as the availability and options are concerned, we are quite capable of meeting the demands. There is a lot of investment happening by majority of the OEMs creating huge capacities to meet the demands. And believe me, most of them have widened their product portfolio and enhanced service capabilities.

When we talk about speciality equipment, yes, there are certain equipment that are not manufactured in the country. Importing such equipment which is about five years old could provide an effective cost optimum solution. But if you import a 15-year-old machine, it is possible that you are bringing in old technology which may not be productive or efficient and would not meet emission and safety norms. So, what we have been trying is to put age restriction on the import of used equipment.

How do you look at the impact on rental companies that are heavily dependent on imports?
Rental companies have perhaps a greater dependence on imports for speciality equipment like piling rigs, foundation drilling, heavy lifting equipment, etc. which are not manufactured in the country. I don’t think they are too dependent on imported equipment for anything that is made in the country and I firmly believe that what is made in the country is definitely more cost-effective.

Which are the major sectors that will be benefitted from this move?
It will be across the industries. Look at it from a different angle, which for me is really positive: the move to regulate the imports is actually sending a signal to the market and the rest of the world that if you want to be in India, you should be manufacturing in India and providing services and parts in India.

How do you look at the option of third-party certification process which is so prevalent in mature markets?
Details about the certification process are not yet completely spelt out. Third-party certification has to be obtained before the equipment is brought into the country. As you said, there are lot of reputed agencies across the world who do this, and maybe the government will have to appoint few agencies.

Paradoxically, the used equipment market is not encouraged in the country. Even major exhibitions like Excon do not entertain the display of used equipment.
The used equipment market in the country will definitely continue to grow. The used equipment market which gets created as a consequence of equipment manufactured in the country caters to a new secondary market segment. One needs to understand that exhibitions are meant not for sale but to display the latest technology and display what is new about the industry. It is not a kind of yard where you buy equipment; yes, OEMs will have special arrangements with finance companies with special offers and stuff like that but the whole concept of an exhibition is for the entire industry to come together and share what is new in the market in terms of products and technology and that is why you have so many new product launches happening during exhibitions.

How do you view future growth prospects?
In November last year during Excon, we and CII released a report on the Vision 2020 which was put together by Accenture. This report underlined that this industry has a tremendous future, even looking at a growth of almost seven times more. But the issue is, growth does not come about on its own, there has to be reform and policy change, and every stakeholder needs to join hands to make it happen. There is definitely a huge growth opportunity potential; it is just that there has to be the process of catalysing the growth, which is unfortunately not happening now. In the short term, we have turbulent times ahead, but in the long term I think there are a lot of opportunities.
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