ICRA's Rs. 25,000 Cr Forecast for Construction Equipment by FY2030

By FY2030, increased component localization could create an annual market of about Rs. 25,000 crore. This growth will be fueled by localizing key parts like undercarriages and precision hydraulics.

India's mining and construction equipment (MCE) sector is the world's third-largest by volume. Currently, it imports around 50% of its components by value. These imports come mainly from China, Japan, and South Korea. They include complex, technology-intensive parts such as hydraulics, undercarriages, and high-tech electronics.

These components are either difficult to produce or require large-scale manufacturing to be economically viable. High tonnage machinery and specific steel alloy grades are also imported. ICRA expects localization levels to rise from 50% to over 70% in the next 5-7 years. This increase will significantly boost domestic manufacturing and reduce import dependence.
 

Official Statement Given By Sector Head, ICRA

Ritu Goswami, Sector Head of Corporate Ratings at ICRA, commented on the situation. She noted, “Indian government aims to become a US$7 trillion economy by 2030. Given the multiplier effect of infrastructure development on economic growth, the government is likely to prioritize infrastructure investment in coming years. This focus will be balanced with fiscal consolidation efforts. As a result, domestic demand prospects for the MCE industry look favorable. The supply side needs to keep pace to support this growth.”

Goswami further explained, “while the industry has a domestic manufacturing base, indigenization levels vary across equipment categories. There's still high import dependence, providing significant scope for development. Improved localization will have multiple benefits. It will protect the supply chain from geopolitical risks, enhance operational efficiency, and create more job opportunities.”

Several factors contribute to the high levels of imports in the MCE industry. These include viability issues for component vendors due to insufficient domestic demand and limited exports. The export limitations stem from cost disadvantages and lagging emission standards for some equipment categories. Additionally, certain raw materials, like specialty steel, are unavailable domestically.

However, several factors support increased industry localization. These include growing domestic demand, which has seen a CAGR of 12% over FY2015-FY2024. The Production Linked Incentive (PLI) scheme for complementary sectors like specialty steel and auto components is also helpful. Shifting geopolitical dynamics, with global OEMs adopting a China+1 policy to diversify supply chains, further support localization efforts.

At a broader level, the Indian government has been working to improve ease of doing business and create robust infrastructure. These efforts aim to attract investment and enhance the overall competitiveness of domestic manufacturing.

ICRA projects that the Indian MCE industry's localization levels will increase to over 70% in the next 5-7 years. The industry has the potential to become a Rs. 2.1 lakh crore market in annual revenues by FY2030. This increased localization would create an incremental business opportunity of over Rs. 25,000 crore for domestic MCE vendors.

Currently, these vendors primarily rely on original equipment manufacturers for their revenue. The share of other business avenues like replacement demand and exports is relatively modest. As the competitiveness of Indian MCE vendors improves, the export market is expected to offer significant growth opportunities to Indian component suppliers.

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