Explaining the rationale behind the demand, Mr Dimitrov Krishnan, President ICEMA and Managing Director, Volvo CE India Pvt Ltd said “Construction equipment plays a significant role in implementation of infrastructure projects of national importance, which in turn have the potential to accelerate economic growth. Unfortunately, India’s CE industry is faced with a liquidity crunch, with financiers not being able to offer funding at low cost.” Granting priority sector status to the CE industry would facilitate the flow of low-cost long-term funds to our industry, he added.
Given that close to 85% construction equipment is sold on finance, the sector’s liquidity challenges have been further exacerbated by the recent Reserve Bank of India circular mandating daily NPA reporting by NBFCs and reversal of the NPA only after clearance of overdues. This has led to higher GNPA levels for NBFCs, making them more risk-averse, which has further constrained the flow of funds to the construction equipment sector. This in turn has severely impacted the sales of construction equipment.
ICEMA, on behalf of the CE manufacturers has therefore requested the Government to consider relaxing the NPA reporting norms for NBFCs until the COVID situation improves in the country. This will not only be beneficial for borrowers, particularly the MSMEs, who are still struggling to revive their businesses but will enhance NBFCs risk appetite encouraging them to extend adequate funds to critical sectors such as construction equipment.
While thanking the Government for accepting its long standing demand for setting up a development finance institution, ICEMA urged the government to ensure that the newly incorporated National Bank for Financing Infrastructure and Development (NaBFID) commences business as scheduled. A release of the planned INR 1 lakh crore financial assistance in the upcoming financial year will surely infuse the much needed liquidity for the CE sector as well.
ICEMA also requested the Government to continue to provide strong push towards infrastructure development and construction activity through enhanced budgetary allocation towards the same, and to ensure speedy implementation of projects already approved under the NIP. Only a fraction of the 9,000 projects envisaged to be delivered under the NIP over a 5-year period, are currently being implemented.
Slow construction activity in the country has adversely impacted the demand for construction equipment, with the sector having experienced a 23% drop in sales during the third quarter of the current financial year (Q3FY22) compared to Q3FY21, as per the latest Industry performance report released by ICEMA. Significant slowdown has also been observed in road construction, which is a major demand driver for the CE industry. The overall road construction activity hit a 4-year low of 21.3km/day in the FY22. During April-December 2021, only 5,835 kms of road construction contracts have been awarded as compared to 7,767 kms awarded in the same period during the previous financial year. This has raised the CE industry’s concerns about the growth prospects.
ICEMA has also requested the government to consider a dedicated PLI scheme for the construction equipment sector which would help in attracting greater investment into the sector and boosting exports of construction equipment from India.
Though the growth potential for India’s CE industry is immense, it is constrained by limited liquidity, and slowdown in construction activity. Addressing these in the Union Budget 2022 by lending priority sector status will augur well for the CE industry and India’s economic growth.