German Machinery Manufactures continueto be upbeat about the Indian market, writes Rajesh Nath.

“ElectricECE equipment are poised to witness high growth with multiple OEM’s launchingelectric models due the government’s strict measures towards emissionregulations, customer demand, and availability of inexpensive loans andincentives for construction with sustainability ambitions.”

RajeshNath, Managing Director, VDMA India Services Pvt. Ltd.

The mechanical engineering industry recoveredsignificantly in the first quarter of this year. Growth will also be seen inthe following months, as large declines were recorded in the previous year. Afterthe severe second wave, and now with several relaxations and industrialactivities inching towards normalcy, the situation is improving but it willtake time to reach pre-COVID levels.

The road to recovery is slow, but the effort issustained. Due to the supply chain disruption, many industries are facingdifficulties in receiving and executing orders due to unavailability of regularraw material supply and they are facing problems on the cash flow end due tocash flow cycles being longer and highly disrupted over the course of thispandemic. This issue could prolong if India is impacted by the third wave.

The construction industry in India is one of thesectors which has been resilient to COVID impact, maintaining a steady growthdespite a slowdown in the construction activity due to lockdown last year.

The Earthmoving and Construction Equipment (ECE)sector has been significantly impacted by COVID, but India presents a stronggrowth opportunity. Global ECE sales (other than China) dropped by 25-30 percent Y-o-Y due to COVID impact in CY20. However, APAC region shows promisingresponsibility for more than half of the new demand through 2023.

The Indian ECE sector sales grew by 7.0 per centin 2020-21. A strong V-shaped recovery is expected with high volume growthprojected in FY22, with rural India playing a significant role as a growthdriver. Increased mechanization, expanding product portfolio andelectrification, developing asset light business models basis, digitalizationand expanding international presence and increased focus on costcompetitiveness are a few trends shaping the future of the Earthmoving and ConstructionEquipment sector in India.

From about 73,000 units in 2012, bottoming outin 2015 to around 50,000 units, the Indian ECE industry has exhibited a strongvolume growth of 96 per cent over five years with around 98,000 units in 2019. However,mechanization continues to be low, with just 1.0 per cent penetration from 2013to 2018.

But, there is significant headroom for growth dueto increased infrastructure expenditure as 3-4 per cent of GDP in India, fromwhat was 1.0 per cent in 2019. With the influx of projects in infrastructureconstruction, the construction equipment industry is expected to grow at 4.0per cent in the period during 2019-26 with the equipment sales expected toreach 122 thousand units.

India’s infrastructure push with NationalInfrastructure Pipeline (NIP) involves investments of Euro 1.1 trillion till2025-26 in 34 sectors of the economy, comprising 70 per cent of the investmentsallotted for energy, roads, railways and urban infrastructure. Out of this, around1.7 thousand projects are under various phases of development.

Significant increase in project uptake targetedcan be achieved only through higher mechanization. Th Government is now mandatinguse of specialized ECE equipment, for example, in the NHAI road tenders, etc.

In addition, India is poised to become one ofthe key export hubs on account of reforms in the emission and safety standardsfor equipment manufactured in India. Electric ECE equipment are poised towitness high growth with multiple OEM’s launching electric models due thegovernment’s strict measures towards emission regulations, customer demand, andavailability of inexpensive loans and incentives for construction withsustainability ambitions. The market share for electric equipment inConstruction, Agriculture, and Mining is expected to grow to 50 per cent by2029.

VDMA India conducts the VDMA Business ClimateSurvey twice each year, in spring and again in autumn. This survey is anintegral part of our association’s activities here in India.

The 9^th edition of the VDMA BusinessClimate Survey was conducted in April 2021. More than 100 participants acrossall sectors of the mechanical engineering industry shared their evaluationsregarding their company’s business and the situation of their most importantcustomer industries.

In autumn 2020, 49 per cent of the membercompanies felt that their current stocks of orders were below normal. In spring2021, 17 per cent feel the same way. We can, therefore, see the decrease innegative sentiments mainly because of the pent-up demand and the festive seasonthat India is in.

Almost 91 per cent stated that the situation iseither good or satisfactory. The adverse impact of Covid-19 is still evident,but the business situation for the firms has improved significantly sinceautumn 2020 and, especially, since spring 2020.

The economic outlook is optimistic where only 14per cent of the respondents expect their situation to worsen during the nextsix months while a good 55 per cent expect an improving situation. Theremaining part believes that the situation won’t change much.

Hindered industry participants name thefollowing obstacles:

• Coronavirus Pandemic is the mostfrequent problem,

• Shortages of raw or input materials, and

• Lack of orders.

Companies expect – on average – an increase insales revenue of 15 per cent this year. Sales revenue dropped by 9.0 per centduring 2020 according to these companies. Hence, participants expect theirsales revenue to recover to pre-crisis level.

Overall, the German companies in India are quiteupbeat about the business in 2021 and have reposed their faith in the potentialof the Indian market.