The reduction of GST on construction equipment to 18 per cent has helped boost sales, according to a report released at the CII’s construction equipment expo – Excon 2017.
The report, ‘Building India@75’, was prepared by Feedback for the Indian Construction Equipment Manufacturers Association (ICEMA) and the Confederation of Indian Industry (CII).
“Initially, under the 28 per cent category, the ICE industry felt it was higher than the pre-GST levels that ranged from 14.75 per cent upwards.
The government, responding to industry demands, revised it to 18 per cent in November,” it said.
“The GST reduction leading to lower prices will provide a fillip to renting and leasing options,” the report said.
GST has helped in smoother inter-State movement of construction equipment and contractors have begun to look at opportunities outside their home States, it added.
The rental/leasing business accounts for about a third of the annual sales. While the organised players are expected to gain, it remains to be seen how the unorganised rental players respond to the formalisation initiatives, the report said.
The report said the industry is worried about low private investment. Export growth and its impact on current account deficit is an area of concern.
Fortunately, the concern on rising oil prices has been allayed for now though it remains an area of concern going forward, it said.
The construction equipment industry has begun to see resurgence in equipment buying mainly driven by the legacy clean-up of stalled government orders.
The report said resurgence in buying in construction equipment industry has touched a high of about $5.8 billion, including spares and exports, in fiscal 2016-17.
“The PPP renegotiations, adoption of hybrid annuity model (HAM) which saw many stalled orders being revived, led to a spurt in purchase. The historically low base accounted for the steep rise in sales in 2016-17,” the report said.
This buying has come after a gap of five to six years. The slump from 2011-12 levels was due to a mix of policy paralysis, land acquisition challenges and resultant implementation issues, it added.
“Interestingly, the two 5-Year Plan periods from 2007-12 and 2012-17 saw similar cumulative construction equipment sales (in volume terms) of around 290,000 for each of the five-year period, reflective of the stagnant nature of the market during the last decade,” the report said.
The subsequent estimated rise in CE sales during the current year (2017-18) of 10 per cent provides hope that the ICE industry can look forward to better times in the next five years.