Urgent Reforms Needed for Equipment Rental Industry
Though the equipment rental industry is gradually coming on track, it continues to remain under pressure due to delays in payment recoveries and stagnant rental rates.
Founder & Secretary General Construction Equipment Rental Association (CERA)
Global projections for construction equipment rental market are encouraging. According to Mordor Market Report, the construction equipment rental market was valued at USD 118 billion in 2021, and is expected to reach USD 180 billion by 2027, and register a CAGR of 5.16% during the forecast period 2022 - 2027.
In India also, the equipment rental industry is gradually coming on track, but continues to remain under pressure, as the delayed payment recoveries and stagnant rental rates remain major concerns. Equipment has become expensive, and owing to the devastating economic impact of the Covid pandemic, the operating costs of a rental company have also significantly increased.
The cost of manpower, including operators, has increased by around 30-40%. Along with this, the rental industry is facing an acute shortage of skilled manpower.
There is a consistent and persuasive collective voice in the rental industry calling for improving the payment recoveries, and also for revising the rental tariffs on an urgent basis. If these problems are not addressed soon, then many equipment rental companies along with their employees will have to close shop, and the construction equipment industry will also suffer as a consequence.
Recently, at the CVF off-highway conference in New Delhi, the demand for increasing rental rates was both vocal and reasonable. CERA has also started deliberations on the rental rates and raising the rental industry‘s concerns at various conferences and during panel discussions.
CERA has also been suggesting to the government to revamp the tendering processes so as to ensure security of the rental companies’ payments by law, as is the practice in Singapore. CERA has asked NHAI to add certain clauses in the tendering process and eligibility qualifications for bidders to safeguard the interests of construction equipment rental companies. This concern of delayed and stuck payment/non-payment has also been raised by the Minister of Road Transport and Highways, Shri Nitin Gadkari, several times, and he has stressed stricter reforms to address this issue.
CERA has specifically suggested to NHAI not to issue completion certificate to any contractor/sub-contractor unless they have cleared the payments of all their vendors. Such a mechanism in Singapore has proved to be highly effective. The Building and Construction Industry Security of Payment (SOP) Act in Singapore aims to improve cash-flow in the built environment sector by giving parties the right to seek progress payment for work done. It also provides a fast and low-cost adjudication mechanism to resolve payment disputes.
Due to delayed and stuck payments, the rental industry of India is also facing problems for paying GST and other dues to the government. CERA has apprised the Government many times about this, and has requested it to support the industry by levying GST on reverse charge basis, making the service receiver liable to pay GST; or make GST a liability on the service provider after the company has received payments.
Reforms have to be pushed. Soon, CERA will initiate discussions with relevant stakeholders for revising rental rates according to realistic calculations. Benefits of renting as compared to owning equipment have to be seriously understood, and innovative and beneficial rental models for end-customers need to be introduced.
The equipment rental industry contributes to India’s infrastructure development with rental companies serving the construction companies in the completion of projects by providing high-tech machines and skilled manpower. However, the Equipment Rental Industry needs to become organized by following standardization, adopting best global practices, and building relationships with all the stakeholders.
We are all looking forward to Excon, where we will find opportunities to reconnect with other stakeholders in the CE Industry and learn about the latest global trends, technologies, and standards, which will help in preparing us for the next level of growth. Hope to see you all at EXCON.
NBM&CW May 2022
