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The market for construction equipment will follow an upward trend in the next five years. However, the market may decline in 2019 due to the general election, forecasts <span style="font-weight: bold;">Samir Bansal.</span><p></p><p>Construction equipment demand peaked at 72,492 units in 2011, but sales could not be sustained at that level due to the æpolicy paralysis' phase of the previous government. Sales declined for three consecutive years to a low of 47,991 units in 2014. Nevertheless, the trend reversed as the policy and administrative decisions of the current government to speed up the pace of infrastructure development showed very positive results and the market grew by 2 per cent in 2015, 36 per cent in 2016 and a further 17 per cent in 2017 to a new peak of 78,109 units.</p><p>Sale of construction equipment in the first half of 2018 is estimated to have increased by 33 per cent over corresponding period of 2017. This surge in demand resulted from increased activity in the construction and mining sectors, and the continued momentum following the GST rate reduction in November 2017. Easy availability of finance, positive sentiments and replacement demand are other factors, which helped the market to grow. </p><p>This growth momentum has continued in the second half of 2018 albeit at a lower rate due to the rainy season and elections in four key states of Chhattisgarh, Madhya Pradesh, Rajasthan and Telangana. Despite all these factors, demand for construction equipment is now projected to witness a robust growth of 27 per cent in 2018.</p><p><span style="font-weight: bold;">Forecast to 2022</span><br />The global infrastructure outlook reflects that rising income levels and economic prosperity will drive the nation's demand for infrastructure investment over the next 25 years. India requires investments of around $4.5 trillion up to 2040 to keep pace with its infrastructure development requirements. The current trends indicate that the country will meet around $3.9 trillion infrastructure investment and the cumulative investment will lag by around $526 billion up to 2040.</p><p>India is a developing nation and has large infrastructure gaps that need to be plugged. Infrastructure development is a key economic driver and enjoys an intense government focus that should spur growth in demand for construction equipment both in construction as well as mining activities. </p><p>The government has many ambitious programmes aimed at improving rural and urban infrastructures. In addition, major road network development projects such as Bharatmala Pariyojana, state and rural road development and maintenance, railway, metro rail development, Sagarmala pogramme (port modernisation, connectivity, port linked industrialisation) and airport development will have positive impact on demand of construction equipment. </p><p>The government is monitoring all major infrastructure projects at the highest level to swiftly remove hindrances. It is taking continuous initiatives to reform procedures and policies such as the Real Estate (Regulation and Development) Bill, environment, and forest clearances and land acquisition issues more efficiently. </p><p>The economic fundamentals are strong and will continue to support the infrastructural development activities in the country. The government is also trying to attract domestic and foreign investment into the infrastructure sector, while non-performing asset management and recapitalisation of public sector banks are being undertaken. It is also trying to explore the bond market. The success of infrastructure funding also depends on private investment, which will improve due to policy reforms, ease of doing business and improvement in balance sheets of contractors. </p><p>Infrastructure projects have long gestation periods, and apart from planning and execution issues, legal and procedural problems may arise during the construction phase. These create uncertainty in project execution, which increases the risk for investors and lenders. Tight liquidity and rupee depreciation are other factors that have a negative impact on market growth.</p><p>A general election is scheduled to take place in mid-2019, which may disrupt the speed of execution of construction and mining projects for a short period. Stressed balance sheets of contractors may reduce private investment, which will have a negative impact. </p><p>Considering the set of conditions prevailing in the country and other foreseeable factors at this moment, Off-Highway Research forecasts that the market for construction equipment will follow an upward trend in the next five years. However, the market may decline in 2019 due to the general election, the strong growth experienced in 2016-2018 and huge availability of new equipment in the market. </p><p>Off-Highway Research forecasts the market to grow by 27 per cent to 99,115 units in 2018, which is expected to decline 10 per cent to 89,065 units in 2019. Sales of construction equipment will grow by 8 per cent, each in 2020 and 2021, and 6 per cent in 2022 to peak at 110,815 units. </p><p>Almost all types of equipment will witness growth, though the market will continue to be dominated by the six most popular products: backhoe loaders, crawler excavators, mobile cranes, mobile compressors, compaction equipment and wheeled loaders. Together these will account for 94 per cent of the market in 2022, while backhoe loaders alone will represent 41 per cent and excavators 31 per cent. </p><p>Importantly, demand for equipment that has sold only in small numbers in the past, such as mini excavators, rough terrain lift trucks and motor graders may increase considerably. Skid-steer loaders, rigid dump trucks, and crawler dozers will all continue to remain sluggish. Demand for less frequently purchased equipment such as articulated dump trucks, crawler loaders and wheeled excavators will be driven by specific orders and no future pattern of growth can be predicted for them with any degree of certainty at the moment. </p><p>It may be noted that this forecast assumes that the current government will return next year with a similar majority. However, a change in the government or its structure will have an adverse impact on the forecast.</p><p> <span style="font-weight: bold;">India: Sales and Forecast of Construction ÁùºÏ²Ê¿ª½±¼Ç¼, 2017-2022* (Units)</span><br /><style type="text/css">.tg {border-collapse:collapse;border-spacing:0;} .tg td{font-family:Arial, sans-serif;font-size:14px;padding:10px 5px;border-style:solid;border-width:1px;overflow:hidden;word-break:normal;border-color:black;} .tg th{font-family:Arial, sans-serif;font-size:14px;font-weight:normal;padding:10px 5px;border-style:solid;border-width:1px;overflow:hidden;word-break:normal;border-color:black;} .tg .tg-s268{text-align:left} .tg .tg-0lax{text-align:left;vertical-align:top}</style></p><table class="tg" style="undefined;table-layout: fixed; width: 414px"><colgroup><col style="width: 157px" /><col style="width: 55px" /><col style="width: 55px" /><col style="width: 63px" /><col style="width: 84px" /></colgroup> <tbody><tr> <th class="tg-s268"> </th><th class="tg-s268">2017</th> <th class="tg-0lax">2018</th> <th class="tg-0lax">2022</th> <th class="tg-0lax">% Change <br />2017-2022</th> </tr> <tr> <td class="tg-s268">Articulated Dump<br />Trucks</td> <td class="tg-s268">2<br /></td> <td class="tg-0lax">5</td> <td class="tg-0lax">5</td> <td class="tg-0lax">+150</td> </tr> <tr> <td class="tg-s268">Asphalt Finishers</td> <td class="tg-s268">893</td> <td class="tg-0lax">950</td> <td class="tg-0lax">1,050</td> <td class="tg-0lax">+18</td> </tr> <tr> <td class="tg-s268">Backhoe Loaders</td> <td class="tg-s268">32,728</td> <td class="tg-0lax">45,000</td> <td class="tg-0lax">45,000</td> <td class="tg-0lax">+37</td> </tr> <tr> <td class="tg-s268">Compaction ÁùºÏ²Ê¿ª½±¼Ç¼</td> <td class="tg-s268">4,765</td> <td class="tg-0lax">5,500</td> <td class="tg-0lax">5,000</td> <td class="tg-0lax">+5</td> </tr> <tr> <td class="tg-s268">Crawler Dozers</td> <td class="tg-s268">534</td> <td class="tg-0lax">450</td> <td class="tg-0lax">600</td> <td class="tg-0lax">+12</td> </tr> <tr> <td class="tg-s268">Crawler Excavators</td> <td class="tg-s268">20,062</td> <td class="tg-0lax">24,000</td> <td class="tg-0lax">34,000</td> <td class="tg-0lax">+69</td> </tr> <tr> <td class="tg-s268">Crawler Loaders</td> <td class="tg-s268">3</td> <td class="tg-0lax">5</td> <td class="tg-0lax">5</td> <td class="tg-0lax">+67</td> </tr> <tr> <td class="tg-s268">Mini Excavators</td> <td class="tg-s268">1,021</td> <td class="tg-0lax">1,200</td> <td class="tg-0lax">2,000</td> <td class="tg-0lax">+96</td> </tr> <tr> <td class="tg-s268">Mobile Compressors</td> <td class="tg-s268">5,108</td> <td class="tg-0lax">5,200</td> <td class="tg-0lax">5,500</td> <td class="tg-0lax">+8</td> </tr> <tr> <td class="tg-0lax">Mobile Cranes</td> <td class="tg-0lax">7,749</td> <td class="tg-0lax">11,000</td> <td class="tg-0lax">11,000</td> <td class="tg-0lax">+42</td> </tr> <tr> <td class="tg-0lax">Motor Graders</td> <td class="tg-0lax">1,081</td> <td class="tg-0lax">1,300</td> <td class="tg-0lax">1,500</td> <td class="tg-0lax">+39</td> </tr> <tr> <td class="tg-0lax">Rigid Dump Trucks</td> <td class="tg-0lax">406</td> <td class="tg-0lax">400</td> <td class="tg-0lax">550</td> <td class="tg-0lax">+35</td> </tr> <tr> <td class="tg-0lax">RTLTs</td> <td class="tg-0lax">175</td> <td class="tg-0lax">200</td> <td class="tg-0lax">350</td> <td class="tg-0lax">+100</td> </tr> <tr> <td class="tg-0lax">Skid-Steer Loaders</td> <td class="tg-0lax">799</td> <td class="tg-0lax">600</td> <td class="tg-0lax">750</td> <td class="tg-0lax">-6</td> </tr> <tr> <td class="tg-0lax">Wheeled Excavators</td> <td class="tg-0lax">2</td> <td class="tg-0lax">5</td> <td class="tg-0lax">5</td> <td class="tg-0lax">+150</td> </tr> <tr> <td class="tg-0lax">Wheeled Loaders</td> <td class="tg-0lax">2,781</td> <td class="tg-0lax">3,300</td> <td class="tg-0lax">3,500</td> <td class="tg-0lax">+26</td> </tr> <tr> <td class="tg-0lax">Total</td> <td class="tg-0lax">78,109</td> <td class="tg-0lax">99,115</td> <td class="tg-0lax">110,815</td> <td class="tg-0lax">+42</td> </tr> <tr> <td class="tg-0lax">Annual % Change</td> <td class="tg-0lax">+17</td> <td class="tg-0lax">+18</td> <td class="tg-0lax">+6</td> <td class="tg-0lax"></td> </tr></tbody></table> <p></p><p> <span style="font-style: italic;">The author is General Manager (India), Off-Highway Research.</span></p>