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The imported components are either technology-intensive parts or require large-scale manufacturing to achieve economic viability. | Representative Picture
Increasing component localisation is expected to offer an annual opportunity of approximately Rs 25,000 crore to construction equipment vendors by FY30, according to a recent report by credit rating agency ICRA. The report, assessed by The Financial Express, adds that localisation levels are expected to increase from 50 per cent to over 70 per cent in the next five-seven years.
Currently, India imports nearly 50 per cent of its component requirements (by value) from suppliers based in China, Japan, and South Korea, among others. This is despite the Indian mining and construction equipment (MCE) industry being the third largest in the world in terms of volumes sold.
Imported equipment includes components such as hydraulics, undercarriages, and high-tech electronics like electronic control units (ECUs), sensors, telematics, etc. In addition, certain high-tonnage fully built machinery and some grades of steel alloy are also imported.
Investment drives demand growth
According to the ICRA report, the imported components are either technology-intensive parts or require large-scale manufacturing to achieve economic viability.
“Given its vision to become a $7 trillion economy by 2030 and the multiplier effect of infrastructure development on economic growth, the Government of India is expected to continue prioritising infrastructure investment over the coming years, within the constraints of fiscal consolidation. This will maintain favourable domestic demand prospects for the MCE industry, and the supply side must keep pace to support it,” said Ritu Goswami, sector head – corporate ratings at ICRA.
She said, “While the industry has a domestic manufacturing base with indigenisation levels varying across the equipment categories, it has a high import dependence and provides significant scope for development. Improved localisation will not only shield the supply chain from geopolitical risks and enhance operational efficiency but also help create more job opportunities.”
Factors driving imports
At present, key factors driving the high levels of imports in India include viability issues for component vendors due to insufficient domestic demand and limited exports (due to cost disadvantages and lagging emission standards for a few equipment categories), as well as the unavailability of certain raw materials (example, specialty steel).
Manufacturing construction equipment in India
The ICRA report states that at a macro level, the Indian government has been working towards improving the ease of doing business and creating robust infrastructure to attract investment and improve the overall competitiveness of the domestic manufacturing industry.
Citing the Production-Linked Incentive scheme, the report adds, “ICRA projects that the localisation levels of the Indian MCE industry will increase to over 70 per cent over the next five-seven years. With the potential to become a Rs 2.1 trillion market in annual revenues by FY2030, this increased localisation share would translate into an incremental business opportunity of over Rs 25,000 crore for domestic MCE vendors.”
The report also mentions the ‘China+1’ policy being adopted by global OEMs to diversify their supply chains. “Undercarriage components such as track chains, rollers, and idlers can be localised in the near term since these provide a good market opportunity, are not high on technology requirements, and are heavy and logistically expensive to transport… Electronic components (which are highly R&D intensive) will require firm visibility on volumes and could be the last to become viable for local production,” it added.
First Published: Aug 20 2024 | 3:56 PM IST
