Impact of Infrastructure Growth Challenges on Earth Moving Industry
The earth moving equipment industry in the country is expected to clock double-digit growth by the next financial year end i.e., March 2017, mainly due to major infrastructure projects announced and increased government spending for the same.
The infrastructure investment targets outlined by the government are aggressive and signal a positive intent, which could mean huge potential for Indias earth moving equipment industry. As a matter of fact, major earth moving equipment manufacturers are bullish about the Union government’s focus on road and highway sector, urban development and other infrastructure projects and believe that it will act as a catalyst in the growth of the segment. However, there are major challenges on the path to growth.
Challenges to achieving infrastructure targets
- Limited long-term funds: Funding for infrastructure projects is a constraint because of limited public funds, which leads to work-in-progress projects being stalled, thereby, adversely impacting the growth of earth moving equipment industry.
- Land acquisition delays: Across infrastructure projects, delays as a result of land not being acquired by the time projects are awarded have affected many projects both before and after they start. Due to this, the demand for earth moving equipment is also affected.
- Clearance delays: Delays related to forest and environment clearances heavily impact infrastructure projects. Clearance policies are often not used objectively, providing different rationale for clearances on different occasions. Not only does this impact the speed of clearances, it also sends uncertain signals to investors and often leads to pullback of investments directly leading to low demand.
- Inadequate planning: Many times, the infrastructure plans do not necessarily incorporate an integrated view that encompass all facets of development, including transportation, housing and effective land use, to name a few. For example, there is general lack of coordination between central, state and local agencies for road construction projects and planning for urban transportation. Because of changes in the ecosystem, the master plans developed for urban development are often outdated by the time they are implemented. Thus, adversely affecting the market.
- Low financial viability: Many infrastructure projects have low internal rate of return because they are heavy on investment and the revenue stream often does not reflect fair costing. Because infrastructure projects tend to be multiyear programs, working capital cycles are long and operators are stretched for margins. Thus, interest in infrastructure development projects is often low, especially from operators looking to invest in short-term projects with good financial returns. This also impacts on the industry.
- Weak governance. Multiple bodies acting at all levels across central, state and local governments is a common phenomenon across an array of infrastructure development areas. The fragmented nature of governance not only delays projects, but also conveys conflicting signals to stakeholders, thereby, adversely affecting the demand for heavy earth moving equipment.
In a nutshell
Many analysts as well as earth moving equipment manufacturers of the country believe that an array of proactive initiatives taken by the government as well as others to boost infrastructure segment in the country can in turn, help the industry grow.