CE industry’s ‘Vision 2030’
Dimitrov Krishnan, President, ICEMA, Managing Director, Volvo CE India Pvt Ltd, shares his thoughts on India’s CE Industry, its growth over the years, the challenges and issues, and its potential to further strengthen its position in the international markets with its offerings of high-tech construction equipment and components.
In December 2020, ICEMA released a highly informative and well researched document ‘Vision Plan 2030’ : Building the Nation. The Vision Plan clearly identifies a structured and focused roadmap towards helping the Indian CE Industry become the 2nd largest and the fastest growing CE Market in the world by 2030. Please elaborate.
From a macro perspective, ICEMA’s Vision Plan 2030 is an ambitious plan. We have a long way to go in meeting the infrastructure needs of India’s population of 1.3 billion, which accounts for 1/7th of the global population. We haven’t really urbanized, nor have we developed infrastructure similar to several developed and developing nations. The immense potential is now beginning to get realized slowly.
Over the next two years, we will execute our Vision Plan focused on 3 pillars covering 8 priority areas:
Pillar 1: sustained demand creation through improved Government-CE Industry collaboration by forming a joint taskforce; targeted efforts to propel exports to 15-20% of CE production and developing alternate or additional demand channels to improve top-line stability.
Pillar 2: create a robust operating ecosystem by driving indigenization and reducing imports of components; supporting the creation of an organized rental market; and facilitating better access to funds for construction and for buying construction equipment.
Pillar 3: have a stable foundation with technology and skilling; develop indigenous technology capabilities; and initiate formal training for a pool of skilled workforce.
To achieve our Vision, we are:
- Engaging with the government to set up a joint task force focused on driving demand.
- Making efforts to accelerate build-up of an ecosystem for technology indigenization.
- Building a stronger ICEMA secretariat with a view to ensuring smooth execution of the Vision Plan.
- Encouraging and increasing the involvement of ICEMA members and other stakeholders as well.
How are India’s infra development plans progressing?
The Indian government is taking important measures to catalyze infrastructure development across the country. These include some of the biggest structural reforms such as the National Infrastructure Pipeline (NIP), entailing the ambitious roll out of USD 1.4 trillion dollar projects over five years; under the National Monetization Plan (NMP) the funds invested in country’s brownfield assets will get reinvested in the NIP projects amongst others. The establishment of the NaBFID for infrastructure financing and development was a long standing demand of the industry and was announced in the Budget 2021.
The need for ICEMA to engage with all kinds of partners is crucial and once we set the ball rolling, our partnerships and associations will gather momentum as they will be guided by our leadership and experience. Teamwork is the key
In addition, the Single Window Clearance system, called the Gati Shakti Mission, is a digital platform to bring 16 Ministries including the railways and roadways together for integrated planning and coordinated implementation of infrastructure connectivity projects. The Gati Shakti will add value to coordinating the projects and synchronizing various processes of infrastructure development.
All these are structural reforms created with a timeline of 15-20 years during which major infrastructure development activities are expected to take place. While the industry has set itself very ambitious targets under the Vision Plan 2030, these are aligned with the Government’s ambitious plans.
How do you propose to achieve the targets set under ICEMA’s Vision Plan 2030 in a tough business scenario?
We have already done some great work; if you compare the infrastructure in the country today to what it was 10 years ago, you will see a huge difference.
Strategy is important, followed by planning and execution. The strategy outlined in the Vision Plan was developed along with our knowledge partners, BCG, and also reflects the views of various stakeholders. This was a structured consultative process, involving 30 to 35 members. I see the Vision Plan as a crowdsourced idea that has been distilled into the pillars in the eight focus areas.
We also took a decision to expand ICEMA’s Governing Council (GC) from the initial 15 members to 18 members. This would give us much need leadership to drive the various aspects of the Vision Plan, generate newer ideas and more proactive decision making. The GC now comprises of 15 elected members and three past presidents.
As a next step, we formed 7 panels to take ownership of the task aligned to the Vision Plan. Each panel comprises a convenor and a co-convener who are GC members. We invite officials from member companies to drive the activities of the panels; this year we received an excellent response with some panels having 20 to 25 members.
We have constituted a few new panels to drive the Vision Plan; these include the Manufacturing Supply Chain and the Industry Analysis panels. The Technical Panel will focus on sustainability; and the erstwhile Conference and Promotion and the Membership Panel have been combined and renamed Brand Building & Communication panel.
The Smart Infra panel has been constituted to drive demand for modern, agile, resilient, and tech-enabled infrastructure. This Panel coordinates with NIP stakeholders for long-term visibility of project pipeline, monitors ongoing projects and addresses issues and challenges being faced by the CE industry..
ICEMA’s Finance panel, which used earlier focus on making budget recommendations, now has a broader agenda; it is also exploring new ways of financing CE such as leasing, rentals, and creating opportunities for owning equipment easily and quickly.
These panels will together drive the Vision Plan implementation on a day-to-day basis. I am happy to say that in the last 2-3 months, tremendous progress has been made. There is an excellent list of planned activities, initiatives, and events, directed towards achieving our goals.
How do you see the Indian CE industry’s capabilities as regards manufacturing, technology adoptions and upgradations, R&D, and innovations?
If you look at the capability of India’s construction equipment manufacturing industry, it is largely local (even though we still use several imported components in our products), and all kinds of construction equipment are being manufactured in the country.
Most companies are offering latest high-tech machines with built-in electronics, telematics, etc, which bring additional value to the end-user by way of increased productivity and profitability.
The more we engage with the Government, the more we can influence decisions on how projects can be speeded up and other construction issues resolved, and, as we go along, more questions, discussions, and solutions will emerge
India rates very high in terms of technology with some of the world’s largest players from Europe, Japan, Korea, and China, manufacturing construction equipment in the country. This has made the Indian market very vibrant and competitive as well. Many of these international players are also undertaking extensive R&D in India for developing and engineering products for export markets.
Typically, a shift in the engine technology drives a big shift in the technology of the entire product. With the CE industry transitioning to electronic engines, the CE manufacturers are able to offer several value added advanced features.
What are the challenges for the CE Industry in technology upgradation?
Implementation of advanced technologies is dependent on regulations in play. Hence a good level of technology has been integrated in to the (regulated) wheeled machines. In fact, at Stage 4, we are just one step behind Europe, which is at Stage 5, but we will catch up with them by 2024.
At the same time, many questions come to mind: are we moving in the right direction to be at par with world standards, or do we still have a long way to go? I think it’s a mixed picture. The largest number of buyers of construction equipment in India are private users, whereas the Government’s role is to announce and pass tenders. The space is so big that it’s difficult to generalize.
In a highly organized industry such as cement, technology implementation is high as it brings real-time benefits. The end-users keep asking for additional features based on emerging global trends and upgrade their machines to remain competitive and save operational costs.
When you’re using a machine for 22 hours a day versus 10 hours a day, with little or no idle machine time left, there is a strong need for reliability and quality. End-users want better monitoring; they want to have access to the telematics data on their machines; and they want to know how to utilize their machines optimally. Therefore, there is very intelligent thinking in this space. But at the other end of the market, there are private players, (typically) single machine buyers, who rent out their machines to a sub-contractor. For them, everything boils down to the price of the machine, so they often opt for a basic machine with low-end technology.
What are the CE Industry’s concerns regarding regulations?
In Europe, construction equipment is called non-road mobile machinery, which come under the purview of a single regulation– be they excavators, wheel loaders, motor graders, or compactors. In India, products on wheels are covered under CMVR (Central Motor Vehicle Rules), with a clear roadmap for safety and emissions (which went from Stage 3 in 2011 to Stage 4 in 2021). The nomenclature has now been changed from BS 4 to CEV 4 to differentiate the CE from automobiles (which is more regulated). The CEVs have more emphasis on operator and equipment safety regulations.
A reasonably good amount of regulation is also driving the technological shift; however, the larger equipment market such as excavators does not have any regulation – an issue that the CE industry has been discussing with the Government for several years. In fact, the CEV 4 regulation were drafted with joint Government-Industry efforts, with the industry agreeing to skip CEV 3 and go straight to CEV 4.
We have written to the Road & Highway Ministry for regulating the off-highway machines rather than to the DHI (which is our nodal ministry), because it is the Road Ministry that has the technological understanding and the capability to regulate. Hon’ble Minister, MoRTH, Shri Nitin Gadkari has assured us that they will find a way to bring in the required regulations.
The CE Industry is progressive and proactive, yet conventional too; we have players manufacturing latest high-tech machines, but in cases where there are no regulations machines are being manufactured even with 25-year-old technologies. Therefore, the spectrum is wide – from the most advanced machines to the most basic. Many large players in India are undertaking R&D and electro-mobility engineering for developing machines with advanced engines and other high-tech features for the world.
The way Uber and Ola replaced traditional taxis, going forward the CE industry too, particularly the rental segment, could become digitized and more high-tech. In such a scenario, we would have to take a relook at the regulations and new requirements for the industry to evolve.
How is ICEMA tackling the issue of using fuel alternatives in the CE industry?
Our Technology and Sustainability panel is working with the Government and stakeholders to drive emission norms, safety norms, and other regulations, and to develop a clear roadmap for taking the CE industry towards technological advancement.
Encouraged by the government’s positive approach we are exploring opportunities to transition to cleaner alternative fuels. ICEMA is planning to hold a Biodiesel Summit to discuss the roadmap, the gaps in the ecosystem and the opportunities for the industry to contribute towards carbon neutrality.
Biofuels are a simpler alternative to diesel. Construction Equipment cannot be operated with fuels such as CNG, LNG and Ethanol as they do not meet the power and torque requirements of these heavy-duty machines. These machines need diesel engines that generate high torque at low RPM. Most engines can use biodiesel up to a certain degree of blend, which is also cost-effective. We have taken up this issue with the Government as much needs to be done to build the ecosystem for the CE industry to transition to bio-diesel.
Earlier, the NBFCs could support marginal credit-worthy customers, which led to the growth of the CE industry. We have also been writing to the RBI to help create an ecosystem that would support India’s NBFCs to continue to finance CE
Though the industry is talking about electric and hydrogen driven engines, but these are very new concepts which will take time to develop and become popular. Getting into electro-mobility is a bigger challenge, because the ecosystem needs to be ready with charging systems, availability of batteries, and the customers’ readiness to adopt the new technology.
On what matters is ICEMA engaging with the Government at the central and state levels?
Demand creation being one of ICEMA’s primary goals, we have created the Smart Infra and the Strategic Partnership panels. The idea is to work with the government actively and have meaningful dialogues on various ongoing projects so that the government sees us as an important stakeholder and engages us for better execution of its projects.
For example, given our knowledge and experience of the selection and usage of equipment we can help the Government with information on the type, number, and age of equipment that can be specifically deployed in particular project or for a particular application; we can draft guidelines on road construction and other infra projects, and we can make suggestions for timely implementation and commissioning of major projects.
Our panel for Strategic Partnerships aims to engage with state governments since many of them are joining the infrastructure bandwagon. In fact, we are creating an ecosystem comprising the central and state governments, industry players, domestic and global associations, the academia, and media, and we want to encourage all stakeholders to drive momentum in the CE Industry.
As an industry we want to work with different arms of the Government and influence their project executions to make them better and faster, and thereby create more demand for construction equipment. We need to therefore make the tender specifications clearer and expand the equipment intensity.
What scope do you see for Localization and Make in India?
One of the growth drivers for the CE industry is the extent of localization we can achieve and thereby optimize the value addition on our machines. In fact, we already have a very high level of localization with almost 85% equipment being fitted with more than 50% indigenously produced components. However, there is still immense scope for localization.
Unfortunately, we still need to build the ecosystem and the demand to attract multinational vendors to setup plants in India for components/aggregates. We need government support to make it easy for these international manufacturers to set up shop in India.
We have been working with several overseas vendors and in recent years have seen some of them setting up shop in India for making undercarriages. One of these is a Korean company and the other a European has set up a plant in Chennai. By 2022 we hope to see three more factories for manufacturing undercarriages locally. In fact, an investment of US$30 to 40 million has already been made, which is a good start. The valuation in the beginning will be a certain percentage and as demand increases, the vendors will increase the local content.
The Equipment Rental Market was badly hit by the pandemic and then by the price hike of steel and the BSIV emission norms. How is ICEMA looking to support this segment since growth of rental companies is directly related to your 2030 target?
I think a vibrant rental market reflects a mature and a growing market. Though we are a reasonably large market, the rental space is still disorganized. But associations such as CERA, COAOI etc are playing an active role in addressing the concerns and issues of the equipment rental companies and we are seeing positive results.
However, small players in the rental space will always be hit by any adverse macro-economic situation. Costs are rising – be they freight costs (which have gone through the roof), raw material costs like steel, and even fuel costs. Passing on the costs to the end-users is a sensitive issue and will require negotiating with them. The situation needs to be deliberated upon carefully as it is an unequal relationship; the customers are often larger players and rental companies are dependent on them for business.
ICEMA’s Finance Panel will work with associations that represent the value chain stakeholders to understand the issues and challenges. Also, since these association members are primarily our equipment users, we need to engage with them more formally and bring a common agenda to the table to identify common solutions. Since ICEMA’s voice is reasonably well heard by the Government we should present our common issues in a coordinated manner. At the same time, our Strategic Partnerships panel will help identify other stakeholders in the ecosystem with whom we can partner, both for demand creation and to develop structures required for the CE industry to grow.
Manufacturers are also aware that dealers of equipment and components make it easier for customers to connect with brands. We need to expand this ecosystem so that dealers are treated fairly and get to work with different brands. We have also been engaging with the Machine Tool Manufacturers Association to see what mutual benefits can be derived.
How is ICEMA addressing the industry’s challenge of recruiting only skilled operators and what support is the Government extending?
We are working on skilling the CE workforce through Infrastructure Equipment Sector Council (IESC), which is promoted by ICEMA as well as NSDC. In fact, formal skilling is a major agenda, and we are seeking Government support to make it mandatory for certification.
Though CE industry players are also training operators in their factory premises, and a certification ecosystem has been set up by IESC, it has not been made mandatory. In a meeting with the Hon’ble Minister for Road Transport & Highways, Shri Nitin Gadkari, we requested him to look into the issue of making certification mandatory for machine operators, since we are dealing with heavy equipment operating in construction sites which are often hazardous and unsafe. Only a skilled operator can reduce the risk of accidents at sites.
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To create a pool of quality operators, is ICEMA considering tying up with polytechnics and ITIs to introduce courses for students who want to enter the CE industry?
Initially, IESC was training machine operators, who were hired by the end-users, but now we are also looking at training the youth to become technicians. In fact, many manufacturers, have their own dealership competence development programs.
Going forward, if India’s CE Industry wants to be positioned strongly in the global markets, we will have to upgrade to the latest technology and become more competitive. We would like the Government to support companies keen on setting up shop in India
During the last 6-7 years many of our members and dealers have been engaging with ITIs, diploma institutes, and polytechnics for recruiting technicians, to whom we offer two year apprenticeship to give them the experience of working in factories.
A new regulator, NCVET, been set up for vocational training, will also certify IESC as a skill training body. We are working with them and expect to see some new programs and activities being initiated.
IESC has been dependent on government grants since its formation, but in the long term, we will have to find other ways to finance training activities. Manufacturers alone cannot fund this activity completely. Eventually equipment users will also have to contribute their share of funds to get skilled operators and workers.
We are working with the Government to make certification mandatory for machine operators. This will drive demand for training programs, and eventually, the programs could get funded possibly through tie-ups with small finance companies for loans.
ICEMA would like to work with associations such as CERA to make the industry more skill-based since their members are users of our equipment. We need to engage with the end-users of our products so that we can assess their on-field performance and help them use the equipment optimally.
To achieve the 2030 target, we have to focus on exports; therefore the CE industry must ensure that our equipment is at par with the world’s quality standards and is also competitively priced. What steps is ICEMA taking to ensure that our exports grow at a good pace and how can the government support this objective?
One of the objectives outlined in ICEMA’s Vision Plan is to increase exports to about 25% of the total business of the industry. We want to go from half a billion now to three billion in 2030. We may have very few Indian brands, but our volume products (which are generally of a global brand) are being engineered and manufactured in India.
The fact that Indian companies are working with older technologies restricts our export potential since the features in such machines do not meet global standards, making them unsuitable for exports. However, there are some manufacturers who are exporting such machines to/or targeting countries in Asia, Africa, Middle East, and Southeast Asia where the regulations are not so stringent.
The Made in India tag can become competitive only if our products are at par with global quality and technology standards. CII is also discussing such a move with the Government of India. In fact, some of our manufacturers have started exporting to the US and Europe, but they are a very small number.
India’s image as a business-friendly country and its image as country with great industrial capabilities have to be built and sustained in order to lure international brands to do business with us. For India to emerge as a manufacturing hub for global companies, each and every member has to promote and showcase India’s capabilities.
At the same time, our infrastructure must meet our manufacturing and supply chain objectives. These include our ports and logistics for timely trading of our engineered goods and related products. L&T is setting an example in heavy engineering, fabrication, and exports.
We must adopt the best practices and emphasize the right quality if our objective is to export our products. Else, we can stick to the domestic market’s mindset of being okay with average quality. To export, we must raise the demand for quality - be it the paint on the products, surface treatment of sheet metals, welding, etc. Technology shifts in terms of more electronics in products, meeting emission and safety norms, will enhance our competitiveness.