Constructionshows
bC India 2013: Government doubles infrastructure spending in new five year plan
bC India 2013, International Trade Fair for Construction Machinery, Building Material Machines, Mining Machines and Construction Vehicles takes place from 5 to 8 February, 2013 in Mumbai. The second edition of the BAUMA CONEXPO SHOW is expected to host around 700 exhibitors and over 30,000 visitors. bC India 2013 will occupy 130,000 square meters of exhibition space at the Bandra Kurla Complex, going up from 88,000 square meters occupied during the last fair.
The construction sector in India is likely to continue its growth above the average GDP. In an interview with the organizer of bC India, bC Expo India, Shushmul Maheshwari, spokesperson of the Research Company RNCOS, and Anna Westenberger, spokesperson of Germany Trade and Invest (GTAI), outlined the current situation of the Indian market.
bC Expo India: What is the most unique feature about the Indian construction industry?
Shushmul Maheshwari: The Indian construction industry is highly fragmented. This is partially due to the fact that, for most projects, there are no long-term relationships between the contractors and clients and partially due to the fact that the sector in many cases lacks economies of scale. Thus, smaller players may have better cost structures due to lower overhead costs. Furthermore, one has to differentiate between the organized and the unorganized segment of the sector. The organized segment consists of firms and independent contractors who manage their business on a more professional basis and operate on small and medium as well as large scales. The unorganized segment primarily consists of stand-alone contractors that operate at a small scale.
What does that mean for the demand for construction equipment?
SM: India, as the world’s seventh largest country by area and second biggest by population, is one of the most dynamically growing, but largely untapped construction equipment markets. In the recent years, the country has witnessed massive investment in the construction industry from both public and private enterprises. Multi-billion dollar investments in constructing roads, ports and power plants, and developing telecommunication sector and urban infrastructure have paved the way for the construction equipment demand to grow phenomenally. Industry experts predict the market growing even faster for the coming years. From 2010 to 2020 it is estimated to grow six times to a size of 20 to 25 billion US dollars.
But won‘t the recent slowdown in economic growth affects this trend?
SM: According to our research report, “Booming Construction Equipment Market in India”, the Indian construction equipment industry has been witnessing a consistent double-digit growth over the past few years. Though the economic slowdown had its moderate effects on the industry, it regained momentum in 2010 showing a stupendous growth which is expected to continue in the years to come.
Anna Westenberger: The construction equipment market did indeed grow slower; nonetheless we are still talking about five per cent annual growth. The reason for this decline lies in growing uncertainties regarding the market and its regulations as well as rising capital costs. In the medium term we are still not worried. Especially the demand for low-budget housing will very likely not decline, especially if one takes into account the rapid growth of India‘s metropolises.
What are the main drivers for this growth?
SM: The earth-moving segment, in particular, has been driving the overall construction equipment industry in India, with the strong demand emanating from the government-backed infrastructure projects. The segment is poised to register a remarkable compound annual growth rate of around twenty-one per cent during 2011 to 2015, as per our estimates.
AW: We also expect significant growth from infrastructure. The current five year plan of the government, which covers the period up until 2017, includes doubling the investments in this sector compared to the recent one. Big investments are planned to expand the countries energy- and water supply as well as roads and the train network. Furthermore, several ports and airports are in planning or already being built.
But India is still behind when it comes to the market for construction machinery and equipment
AW: As long as labor costs are comparably low, at least smaller firms will shy away from the investments that come with that sort of equipment. India‘s highly fragmented building sector still hosts a significant number of these. Especially if we are talking about smaller building projects, the smaller builders often have an advantage, since they offer cheaper labor compared to the big competitors. But even as we speak, the circumstances are changing. There are two main factors that make a growing construction equipment market very likely. The number of larger projects is growing strongly. With those, heavy machinery is without alternative if companies want to build beyond a certain size. Especially in the metropolises many new buildings have reached a size which is impossible to build without the help of professional equipment. The second factor is the time. The more the sector is professionalized, the shorter the schedules become. Manual labor may still be cheaper, but it will consume more time. And that is time that especially the large builders are not willing to afford.
What can the Industry do to foster the expected growth?
SM: It is a major task for the industry to adapt to the expected growth. India‘s worldwide market share in the industry already tripled to six per cent from 2004 to 2010 and will continue to grow. Companies therefore have to adapt on multiple fronts. One of them is the collaboration with the suppliers, another is improving the competitiveness. This means, for example, to create new products which suit the Indian‘s customers demands and to continuously upgrade the skills of the sales force.
Further information: www.bcindia.com
Source: bC India News Room
