In accordance with the construction equipment industry and per NBM&CW’s own conservative estimates, the demand for equipment would continue to grow at a rate of 15 to 20 percent per annum. This is expected to continue from the year 2006 down the line till 2010 and somewhat further. Although, the demand may pass through certain phases of correction in stages but overall it would continue to remain firm and stable.
Further, as per the industry and NBM&CW’s estimates, the demand may be slow down from the unprecedented 33 percent growth which it clocked in the year 2004 but the projected figure of 15 to 20 percent is quite firm by itself and by no means modest.
Infrastructure Areas to Cater Demand
Besides, construction of newer airports in the country to cater the growing passenger traffic and cargo movement would lead to demand of construction equipment in large proportions as well.
As known that, apart from revamping the metro airports of Delhi and Mumbai, the Airport Authority of India has drawn an ambitious plan for modernising 35 selected nonmetro airports in the country to world class standards in a phased manner with the focus on air side and city side development. The financing issues regarding non-metro airport projects are being presently examined by the Planning Commission.
Apart from developing 35 non-metro airports, the Government is also embarking on a massive drive to modernise existing airports and build new ones at a cost of $10 billion over the next four years. The projects involve both upgrading and building airports in 41 cities, including six key cities.
Development of other key infrastructure areas would also create demand of equipment. A prime area in this regard would be the country’s port sector. The Government has recently announced the country’s ambitious National Maritime Development Programme (NMDP). The programme aims at focussed and accelerated investment for developing the infrastructure of the country’s major ports over a period upto 2011–12.
Development of special economic zones (SEZ’s) by the Government would also cater to the demand of construction equipment.The Union government has recently cleared Rs. 100,000 crore investment in SEZ’s. The SEZ’s would be spread over 40,000 hectares of land in different states.
Other infrastructure growth areas to cater demand of equipment, would be aided by through development of mass rapid transport systems (MRTS). Many states in the country are drawing up plans for developing mass rapid transport systems (MRTS) while some are in the process of expanding the same. Among this, includes the expansion of Delhi Metro Rail Corporation. DMRC plans to expand its route network before the Commonwealth Games of 2010. Besides, Kolkata Metro also plans to expand its route length.
Road Projects to be Prime Demand DriverEquipment demand apart being driven by the development in port, railways, power, and airport infrastructure projects, manufacturers see larger prospects of their products being driven by development of road projects in the country. This is pointed out by Mr. Rajesh Sharma, Marketing Head, Escorts Construction Equipment Limited. He says, “a port, airport or a power project would not be selfsustainable unless it is connected by a proper road network. This is a fact that the government has understood well leading to development of an elaborate road network in the country. This would augur well for the construction industry and the equipment manufacturers as a whole. ”Similar views are expressed by Mr. Manoj Garg, Managing Director, Dynapac Compaction & Paving Equipment (India) Pvt. Ltd.
Manufacturers are strongly banking their hopes on the development of roads in the North-Eastern part of the country. The development of roads in the region is government’s major priority. A scheme called Special Accelerated Road Development programme for the region (SARDP-NE) has also been considered. The programme includes, widening and improvement of 7,639 km of national highways and other roads in the states at a cost of Rs.12,123 crore. This covers a length of 3,251 km of national highways and 4,388 km of State’s roads.
Keeping track of the sectors of construction, those who would cater growth of their products, equipment manufacturers share the perception that the demand would be holistically driven from various sectors of construction. As Mr. Pankaj Gupta, Director Marketing, Hilti India sharing unanimous views with Mr. Sharma points out, “demand would be driven both from the higher end of the value chain of construction in the country pertaining to ports, airports, power projects and SEZ’s on one side and also from real estate, housing construction, satellite township and rural road connectivity on the other side with the latter depicting the middle and lower part of the value chain in construction.”
New Funding Pattern to Spur Demand
This has been done with the intention, since the government and the public alone cannot invest in high capital infrastructure projects to fill in the huge gaps.The much talked about private participation via the BOOT and BOT routes comes handy at this stage. Major construction companies, funding institutions and others are participating in these. It would be notable to know that the ECC division of construction major Larsen & Toubro Limited participated in a number of projects such as the Coimbatore Bypass, Narmada Bridge and Watrak Bridge.
Taking cue of the funding pattern Mr. B.B Gupta, Country Head, Sany Heavy Industries India Private Limited says, “ resource constraint on the part of the government to fund projects is now a thing of past.” This is agreed by Mr. Pankaj Gupta of Hilti.
But nevertheless, both equipment manufacturers and construction companies sound a word of caution saying the decision-making process of the project implementing body has to be streamlined so as to undertake and execute greater volume of infrastructure projects. This is particular for land acquisition and involvement of long gestation period for concerned project. As Mr. I.P Tantia, Chairman and Managing Director of Eastern India based construction heavy weight puts it, “more often than not, the land for construction works is not acquired in advance. Getting land cleared at a latter stage becomes a Herculean task. This at times jeopardises the very viability of the project.” He adds, this has to be rectified with a nodal agency accountable for delays, which should also take charge of land acquisition and utility shifting.
Besides, for larger implementation of projects manufacturers and construction companies hold the view that there has to be general awakening that grand development issues need to be separated from politics. While ensuring amendments, which are in tune with modern times, are executed at a faster pace and law makers must also proactively give attention to the trends of the future BOT projects.
Mechanization Holds Key to DemandAlthough the aspect of mechanisation, of the country’s construction industry has caught bit behind of its Chinese counterpart. But the concept of mechanisation is getting much well and fast adopted by the country’s construction industry. This would be a key factor to catalyse future demand of equipment in due course. This is much evident taking in account the demand trend in the present scenario.
Sharing similar views with Mr. R.S Raghavan, M.D, Proman Infrastructure Services Pvt Limited, Mr. B.B Gupta of Sany states, “mechanisation is becoming a standard practice with the country’s construction industry and this practice is being well adapted by the large, medium and smaller segments of construction companies in India. Adaption of this practice in a larger scale, which in all obvious terms would take place and would propel demand of equipment.”
Mechanization is also getting accepted to attain a better quality benchmark set by implementing agencies. Quality benchmark can be attributed, to attain a desired compaction quality in road construction or to get the desired homogeneous quality of cement concrete etc.
But much concurrently with these factors, mechanisation is becoming a standard practice owing to the reason that mechanisation is not a stand alone but an integrated process where a construction firm, undertaking a contract cannot do with a singe equipment but has to rely on wide variety of equipment for completion of a project.
And with construction companies getting more focussed on economies of scale to get better cost benefits arising out of cut throat competition, the integration process would get stronger, all leading to demand pull for equipment in the long run.
But a cross section of manufacturers also mention, that to get mechanisation much well adopted by the country’s construction industry, project implementing agencies have to make a move from the present conventional practice of awarding the tenders on cost, rather than on the basis of quality. Besides, to get the best out of the process of mechanization, both implementing agencies
and construction companies have to ensure that there is an equal balance of skilled labor component at the site supplemented with adherence to safety regulations. This is a part where there lies certain lacunae in the horizon of the country’s construction industry.
But a question that emanates from the aspect of mechanization and that can be analysed in future perspective, is mechanization becoming an accepted practice with little variation in technology for a product—doesn’t it mean the equipment market would get saturated in due course? Answering to this question, Mr. G.N. Raju, MD, Nawa Engineers Consultants Pvt. Ltd. states, “mechanisation has to be strongly supplemented by effective sales and service parametres. This is a practice that manufacturers have to welcome across in terms well. Since, this would build up the reputation of the company, manufacturing a concerned product and eventually create sustained demand for the equipment in the market. Similar views are echoed by Mr. T. Ramesh, marketing personnel, Telco Construction Equipment Limited.
However, both the gentleman also add, the stipulated time cycle for usage of the equipment, following which the equipment manufacturers face depreciation. This would anyway create demand of equipment. This can be justified in present context, when construction firms are laden with sizeable volume of work.
The view can be taken for granted while taking in account the present swelling order book status of both large and medium scale country’s construction firms, justifying the fact that the equipment can be redeployed at various sites. This is owing to large volume of work in hand.
Rental, A Factor to ReckonThough there could be host of drivers to pull equipment demand, the country’s rental as per certain circles of manufacturers and construction industry would also enable the demand move on, in a fragmented way and in certain pockets of requirement. This is in tune with the unorganised characteristic of the country’s rental industry. But with bulk of country’s construction companies focussed on owning the equipment in view of undertaking long drawn projects as they share the opinion that hiring becomes commercially unviable in the long run, it may be some time that rental industry could really be a strong driving factor for equipment.
But however, with construction companies in certain quarters showing emphasis on project management as their core business activity rather than getting focused in owning and operating the equipment may sound good for equipment demand to grow through hiring. As Mr. Manoj Uthup, business analyst, Indian Infrastructure Equipment Limited and Mr. Sameer Malhotra from Ritchie Brothers, equipment auctioneers unanimously puts it, “It would be some time for the rental industry to be an important driving factor but going by the present indications the future holds positive on the rental industry being a demand mover.”
However, rental or otherwise it is much certain that demand of equipment would continue to grow. And this is definite. All it would require to maintain the buoyancy, is sustained spending on infrastructure by the Government aided with streamlining the decision making process for project implementation.