The Indian construction equipment sector is on the brink of a significant transformation, with a projected $3 billion (Rs. 25,000 crore) annual business opportunity by FY30 driven by increased component localisation. This forecast, highlighted in a recent report by ICRA, underscores the sector's strategic importance as India continues its journey towards becoming a $7 trillion economy by 2030.

Currently, localisation levels in the construction equipment sector stand at around 50%, with the remaining 50% of components being imported from countries like China, Japan, South Korea, and others. These imported components often include technologically advanced parts, such as hydraulics, undercarriages, electronics (including electronic control units (ECUs) and sensors), high-tonnage machinery, and specific grades of steel alloy. The reliance on these imports is primarily due to the technological complexity of the components and the necessity for large-scale manufacturing to achieve economic viability.

The ICRA report predicts that localisation levels will increase significantly, rising to over 70% within the next 5 to 7 years. This shift is expected to create a substantial business opportunity for domestic manufacturers and suppliers, reducing the sector's dependence on foreign imports and aligning with India's broader goals of self-reliance and economic resilience.

Ms. Ritu Goswami, Sector Head of Corporate Ratings at ICRA, emphasized that with India aiming for a $7 trillion economy by 2030 and prioritizing infrastructure investment, the domestic demand for the MCE (Mining and Construction Equipment) industry will remain robust. The drive for increased localisation is not just about economic gains; it is also about mitigating geopolitical risks and enhancing operational efficiency. Furthermore, this move is expected to generate more job opportunities, contributing to India's economic growth and industrial development.
 

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One of the critical factors driving this shift towards localisation is the 'China+1' strategy adopted by global Original Equipment Manufacturers (OEMs). This strategy aims to diversify supply chains by reducing reliance on China and encouraging the sourcing of components from other regions, including India. The ICRA report suggests that while undercarriage components could be localized relatively quickly, electronic components might take more time due to their high R&D intensity.

Despite these challenges, the increased focus on localisation is expected to bring several benefits. By producing components domestically, India can not only reduce its dependence on imports but also develop a more resilient supply chain capable of withstanding global disruptions. Moreover, local production is likely to lead to cost savings, as manufacturers benefit from economies of scale and reduced logistical expenses.

In addition to the economic benefits, increased localisation aligns with the Indian government's vision of promoting 'Make in India' and building a robust manufacturing ecosystem. This initiative will play a crucial role in supporting India's infrastructure growth, which is a key driver of the country's economic development.

Conclusion: The ICRA report sheds light on the immense potential within India's construction equipment sector, particularly through increased component localisation. As the sector moves towards achieving over 70% localisation by FY30, it is set to unlock a $3 billion annual business opportunity. This shift will not only reduce India's dependence on imported components but also strengthen the country's manufacturing capabilities, create jobs, and support India's economic ambitions.

The road ahead may present challenges, especially in localizing complex electronic components, but the long-term benefits of this transformation far outweigh the hurdles. As India continues to invest in infrastructure and grow its economy, the construction equipment sector will play a pivotal role in driving the country's progress and ensuring its position as a global economic powerhouse.

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