ICEMA: equipment industry growth prospect, challenges, training etc
As president of ICEMA and head of one of the world’s largest equipment manufacturers (Caterpillar), where do you see the CE industry stand today and how would you evaluate its position in global markets?
As India progress towards a $5Tn economy, infrastructure continues to be the primary driver of economic growth and ICEMA takes pride in shaping India’s tomorrow by contributing to the infrastructure development through its member companies. The CE Industry has seen tremendous amount of traction post-Covid, catalyzed by the government’s thrust on infrastructure development through various flagship initiatives like NIP, GMP and NMP.On an average, construction equipment comprises around 20% of a project’s cost. In the last fiscal, construction equipment sales crossed the 100K volume mark for the first time with a phenomenal 26% annual growth. Hence, the current spurt in demand for construction equipment, led by the spurt in infrastructure development, is expected to continue this fiscal year, as well as in the future.
Currently, the Indian Construction Equipment Industry is at the 3rd position globally, after the US and China. The record-breaking results of the previous fiscal, the recognition of our products across the world, and the healthy growth in exports, have strengthened our global position, so much so that we are now a strong contender for the second spot in the years to come. This is also in alignment with the Vision Plan 2030 of ICEMA, which has set a goal of making India’s CE Industry the world’s second largest and the fastest growing, with exports growing to US$ 3 billion, and market size tripling to US$ 25 billion by 2030.
What is your perspective on the challenges and strategies in achieving the Technology Vision Plan 2035, and aligning it with the Government’s ambitious plan to build a New India?
Recently, the Hon’ble PM indicated that India will become the 3rd largest economy by 2030. The infrastructure of a country is seen as a key enabler of economic growth; hence, to enable this, we need to deploy high-tech equipment for faster and high quality infra development and also lay more stress on the quality and pace of infrastructure development. The CE industry needs to not only augment its manufacturing capacity, but also enhance its capabilities for providing solutions to build world-class infrastructure at a record pace, which can only be possible by embracing technology.It is with this objective that ICEMA has developed the Technology Vision Roadmap 2035 that outlines the CE Industry’s strategy for technological adaptation. The Roadmap presents a more holistic approach that embraces Safety, Solutions, and Sustainability as the three pillars of technological adaptation. ICEMA is working in association with various stakeholders to achieve the targets set in the Technology Vision Roadmap 2035.
What obstacles does the CE Industry face in terms of technology advancement, and how does ICEMA plan to attract foreign technology providers to invest in India’s construction equipment and component manufacturing to meet both domestic and international demand for high-tech machines?
One of the biggest challenges faced by India’s CE Industry is its ‘high variety and low volume’ characteristic, whereby it produces more than 71 products and hundreds of their variants, but for a limited market size. This dampens the industry’s incentive to invest in state-of-the-art technologies, especially given the fact that the global capacity is not a constraint and demand is not robust in other regions as strong as India.The industry’s high technology products and precision components, which will drive future trends, involve high technology aggregates and systems such as hydraulics, electronic controls, crawler motors, pumps, drives, engines, powertrain etc., which are largely being imported at present, and require considerable investment by the Indian manufacturers in the value chain to enable their domestic production. This would both, reduce the industry’s dependence on imports, as well as increase cost competitiveness of our products so that India can be a net exporter of CE equipment.
ICEMA has been proactively advocating certain policies to alleviate these challenges. We have discussed with the Indian Government to offer incentives to the CE Industry’s global partners for setting up facilities in India for building their manufacturing capacity and capability.
With global brands investing in India to offer their tech-rich products and solutions, India’s CE industry’s dependence on imports would reduce substantially and our machines would become more cost-competitive, which in turn, would increase our exports. ICEMA has therefore discussed with the Indian Government to offer incentives to the CE Industry’s global partners to set up facilities in India for building the manufacturing capacity and capability of the OEMs in India.
Technology integration, adoption and implementation come at a high cost. In India; the difference between high-tech machine buyers vis a vis others who consider acquisition cost over technology is huge (the latter % is quite high, especially rental companies and sub-contractors). So, how do you propose to change the mindset of those who look for low-cost equipment, since, without them, achieving the objective of Tech Vision 2035 will not be possible?
No doubt, technology integration, adoption and implementation come at a high cost. And there are more buyers of low-cost machines in India, especially the rental companies and sub-contractors. We have seen that buyer preference always veers towards products and solutions that offer the highest safety, durability, and efficiency in performance. However, they should not consider just the initial high cost of an equipment, rather, they should look at the entire life cycle of the product and the savings that would accrue over its lifetime.It is therefore the responsibility of the CE industry to create awareness and understanding on the importance of embracing technological advancements for long term benefits. ICEMA, in tandem with member OEMs, continues to work with all the stakeholders so that they understand that the performance and lifecycle of an equipment is enhanced by integrating machines with advanced technologies, so that machine performance and total lifecycle can be a key differentiator in ensuring the success of a project. ICEMA Technology Vision Roadmap 2035 outlines that they need to embrace MGPP (multi-generational product or project plan) in order to develop India’s infrastructure as safe and sustainable, using state-of-the-art machines and solutions.
The record-breaking 26% annual growth last fiscal, the recognition of our products across the world, and the healthy growth in exports, have strengthened our global position, so much so that we are now a strong contender for the second spot in the years to come. This aligns with the Vision Plan 2030 of ICEMA to make India’s CE industry the fastest growing, with exports growing to US$ 3 billion, and market size tripling to US$ 25 billion by 2030.
Given the CE industry’s challenges (GST, emission norms, higher input cost, registration for wheeled equipment etc), how do you plan to resolve them at the industry level and at the government level?
ICEMA has a three-pronged approach: embracing state-of-the-art technology, enhancing competitiveness, and aligning our equipment with world-class quality standards. For example, most of ICEMA products are now connected so that they share real time information with the customer on the machine’s performance, efficiency, maintenance, downtime, idle time, location, etc. during the usage of equipment. I would say that our CE industry is way ahead of the rest of sectors on this aspect.For enhancing competitiveness, ICEMA is working with the policymakers through production linked incentives for the CE industry, towards building local capacity and capability to position India as a global manufacturing hub. Our equipment is also meeting world standards on quality. For aligning with world-class standards with regard to emission norms, the CE industry has already implemented CEV Stage-IV and Phase-I safety requirements effective from 1 April 2021 and the OEMs are now in the process of implementing CEV Stage-V and Phase-II safety requirements soon. ICEMA is also advocating embracing emission norms for off-highway equipment.
ICEMA is also working towards enhancing sustainability of Indian CE products by promoting use of alternate fuels. While we are motivating OEMs to adopt electric-powered and CNG fuelled machinery, we are also pursuing policy advocacy to make facilities for adoption of alternate fuels available near jobsites.
As regards low-cost financing options, the CE Industry has a priority sector lending status, which also allows PSL benefits to banks that are financing construction equipment and also NBFCs operating in the CE space. This will also help the NBFCs to raise low-cost finance for onward lending or leasing.
Since growth of rental companies is directly related to your 2030 target, how is ICEMA looking to support the equipment rental market, which is struggling with low rental rates, and has been hit by the price hike in equipment due to the rise in steel price and the BSIV emission norms, and is now facing competition from OEMs as many have opened their own rental arm?
Rental companies have always been a big part of the CE Industry’s ecosystem. Needless to say that as the industry grows, the rental industry will also continue to grow. In fact, it will make a larger contribution to the anticipated growth due to the various business models that would emerge, which happened in other developed economies.As indicated, the value of a rental business may not be judged by rental rates alone, but by taking a holistic view of the rental cost that would include safety, productivity, durability, and efficiency. It is but natural that as we mature, this change in the mindset of rental equipment customers to a broader perception of cost, is just a matter of time, since the rental equipment customers need to look beyond the rental cost only.
Despite a lot being said and done, the challenge of upskilling and training operators remains; what steps is ICEMA taking to create a pool of qualified operators and technicians and what government support is it seeking?
Skilling is one of the key pillars of the Vision Plan 2030 developed by ICEMA for the Indian Construction Equipment industry. As the CE industry, a key enabler of the infrastructure sector, gears up for accelerated growth in the wake of the Government’s enhanced thrust on infra-led economic growth in the nation, demand for skilled workers to operate this growing supply of modern construction machinery is also expected to increase rapidly in the near future.Meeting the targets of Vision Plan 2030 will lead to a requirement of around 3 million skilled machine operators by 2030, thus placing skilling of the CE industry’s workforce at the centre of its agenda for growth. Further, skilled equipment operators are essential not only for efficient and time-bound completion of projects, but also from the safety standpoint, especially in view of the fact that the bulk of construction and mining equipment are operated in hazardous environments.
ICEMA is a promoter of IESC (Infrastructure Equipment Skill Council) in collaboration with NSDC for building the skill ecosystem for the CE industry. The primary mandate of the Council is to create a sustainable industry-aligned ecosystem for developing robust skills and entrepreneurship in Infrastructure Equipment Sector, through operator training centres across India. The Council represents more than 40 OEMs in the CE industry and has developed 40 job roles covering over 80% of the CE industry’s workforce. IESC has already developed over 28 QPs and certified over 70,000 Operators so far.
However, a key challenge in skilling the workforce for the CE industry is the high cost involved in training operators and mechanics, viz-a-viz other sectors, as a result of the high capital and operational expenditure involved. There is, therefore, the need for re-evaluation of compensation of IESC’s training cost by the Government.
Further, given the expected increase in demand for CE operators and technicians in the near future, and in view of safety requirements in operation of Construction Equipment, it is imperative to mandate deployment of trained certified CE operators and technicians in India across projects, in a phased manner. ICEMA, along with IESC, has presented this issue to the Government.
Another challenge is the low appeal that the construction equipment operator has amongst the youth due to the arduous and often remote working conditions. There is, therefore, a strong need to make equipment operator and technician job roles more attractive and lucrative for the youth through awareness campaigns and public events organised by OEMs, and through educational institutions. OEMs are being motivated as a part of their CSR initiatives to engage with youth from villages and underprivileged communities to join equipment operator and technician training programs.
What steps is ICEMA taking, in collaboration with the government, to ensure robust growth in exports?
The Indian CE industry has a comprehensive and a globally acknowledged product profile. It is exporting products to more than 125 countries worldwide. ICEMA is also working with the Government to create awareness about the quality of Indian CE products and to increase their global outreach.ICEMA has further initiated dialogue with policymakers for re-examining and revisiting the existing foreign trade agreements (FTAs) with other countries to ensure a level playing field for Indian products, which will result in improved terms of trade for us. ICEMA is also exploring options to attract global players and consumers into the domestic market to get economies of scale, which will reduce our dependence on imports on one hand and boost export volumes on the other. We are also working to streamline the logistics in the industry, especially with regard to foreign trade, to make the Indian CE industry’s exports more cost competitive.
During the Tech Vision 2035 launch, the Secretary of Heavy Industries Ministry said that the CE industry should look at bringing 100% localization in their machines, which, however, is not easy to achieve. In your view, how can more localization be encouraged and incentivized by the Government under its Make in India initiative?
It is true that despite significant indigenisation in more than 50% of the Indian CE industry’s volume, we continue to be dependent on imports for several critical, high technology products, and for high-value, high precision components. This impacts the cost-competitiveness of ‘Made in India’ products. However, in view of the low volumes and high technologies involved in construction equipment, localisation of critical aggregates is a major challenge.Therefore, at this juncture there is a need to have higher capacity manufacturing of technologically advanced products, which will need significant investment in the ecosystem to build both capacity and capability.
To address this, the Government needs to offer some incentivisation schemes, especially targeted at global partners, to motivate them to set up their production facilities for high technology products and aggregates in India, as we believe that growth in the future is not going to be of current products with high local content but more of products with relatively low local content.
Do you think that the project awarding system L1 is hurting sales of high-tech equipment since any contractor who is trying to minimize expenses would prefer to buy basic equipment or use an old fleet?
This is partially true; while L1 undoubtedly is a simpler way to objectively drive decision making in selection of equipment, it does not take into account the complete lifecycle cost of the equipment, which determines the outcome of the project. As indicated, the cost of a project is determined by the output, the pace of execution of the project, and the lifecycle cost of the equipment used in the project.Some sectors have made progress in adopting an L1 for lifecycle cost rather than initial buying cost. The Mining sector is a classic example wherein some of these aspects are embraced. As we continue to mature in our pursuit to build world-class infrastructure at record pace, these buying process also will have to change in line with developed economies.
How closely is ICEMA collaborating with the CII Excon team to ensure the success of the event and even set new records?
ICEMA has been the Sector Partner with CII for the prestigious EXCON, the largest construction equipment trade fair in Asia. We have put in place measures to garner maximum participation in the event by reaching out to our partners and associates to encourage their presence. ICEMA is also partnering with CII to hold panel discussions and sessions on topics pertaining to various areas of interest for the CE industry, including indigenisation of components, strengthening the manufacturing ecosystem and promoting sustainability measures.
NBM&CW - December 2023
