Union Budget kept the allocation for Ministry of Road Transport and Highways' allocation largely unchanged. However, stock prices of construction and infrastructure companies took a knock due to a discernible shift towards rural and social sectors in the budget.
23 Jul 2024 | 7472 Views | By Shahkar Abidi
India's construction equipment industry could take some relief from the Union Budget unveiled today as it kept the allocation for Ministry of Road Transport and Highways' allocation largely unchanged from the interim budget. There had been speculation the government would swerve towards the rural economy and welfare programs as a ...
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India's construction equipment industry could take some relief from the Union Budget unveiled today as it kept the allocation for Ministry of Road Transport and Highways' allocation largely unchanged from the interim budget. There had been speculation the government would swerve towards the rural economy and welfare programs as a reaction to the ruling party's poor showing in recent elections. However, stock prices of construction and infrastructure companies like ACE Construction Equipment, IRB Infrastructure Developers, and Man Infraconstruction took a knock due to a discernible shift towards rural and social sectors in the budget.
On a positive note, the Ministry of Road Transport and Highways' capital expenditure outlay for FY25 remained steady at around Rs 2,78,000 crore, mirroring the interim budget's figures.
Finance Minister Nirmala Sitharaman, in her budget address on Tuesday, emphasized the government's substantial investment in infrastructure over the years, citing its powerful multiplier effect on the economy. She pledged continued strong fiscal support for infrastructure projects over the next five years, with a significant Rs 11,11,111 crore allocated for capital expenditure, amounting to 3.4% of the country's GDP.
In practical terms, this capital allocation targets critical infrastructure sectors such as roads, railways, airports, ports, and power plants. These government expenditure plans are meant to create enticing investment opportunities for private sector players, fostering collaboration on large-scale infrastructure projects.
In addition, Sitharaman also indicated other participants -- state governments and the private sector -- would also be invited to join the infrastructure investment thrust.
She unveiled measures to incentivize states to ramp up their infrastructure spending, including a provision of Rs 1.5 lakh crore for long-term interest-free loans.
As for the private sector, investments will be encouraged through viability gap funding and supportive policies and regulations.
The government plans to introduce a market-based financing network, and the PMGSY (Pradhan Mantri Gram Sadak Yojana) will be expanded to provide all-weather connectivity to 25,000 rural habitations, backed by a Rs 2.66 lakh crore allocation for rural development and infrastructure.
Meanwhile, the sharp focus on investment-led growth seen in recent budgets has ensured strong growth for the construction equipment sector in recent years.
For example, total sales of earthmoving equipment, which remains the largest equipment segment of the CE industry, increased to 93,531 units in FY24, translating into a 21% increase when compared with 77,164 units sold in FY23. Of this, backhoe loaders and crawler excavators make up 90 percent of the total earthmoving equipment sales.
Other than earthmoving equipment, material handling equipment, including pick-and-carry cranes and telehandlers, recorded 61% growth in sales volume in FY24, and accounted for 14% of total CE sales, as compared to 9% in FY23.
Concrete equipment such as concrete mixers, batching plants, concrete pumps, and boom pumps together recorded a 19% year-on-year increase in FY24, news agency PTI reported, citing the ICEMA report.
Industry captains attribute this unexpected boom to the government's ongoing infrastructure push. This focus on projects like Bharat Mala and Sagarmala, city infrastructure, and mining coupled with pre-election impetus, fueled project execution and boosted demand for equipment.
Industry Reactions
Shalabh Chaturvedi, Managing Director, CASE Construction Equipment – India & SAARC region said, " “The Finance Minister's announcement of Rs 2.66 lakh crore for rural development, including rural infrastructure, in the Union Budget 2024-25 is a significant investment that aligns with our mission to support and enhance India's rural infrastructure. Starting from the introduction of the Jan Samarth-based Kisan Credit Card, and the support for Andhra Pradesh, Bihar, and other key regions, the government’s holistic approach to infrastructure, skilling, and rural development are vital initiatives"
Chaturvedi added that the focus on employment and skills with an allocation of Rs 2 lakh crore is encouraging. The various schemes for employment-linked incentives and skilling programs will create a skilled workforce ready to meet the demands of modern infrastructure projects. "This budget reflects a balanced approach to developing infrastructure while empowering the workforce, and we are excited to be a part of this transformative journey. Initiatives such as providing one month’s wage for first-time employees, creating job opportunities for 30 lakh youths in manufacturing, and supporting skilling programs for 20 lakh individuals are a great way of boosting productivity, enhancing infrastructure and employment opportunities across the country.” he continued. CASE construction is among the major suppliers of construction equipments for country's infrastructrure development sector.
Commenting on the budget, Vinod Aggarwal, President, SIAM, and MD & CEO, VECV, said, “The Indian Automobile Industry welcomes the continued emphasis on economic growth with several announcements, especially the strong fiscal support for infrastructure in the next 5 years. The announcements, such as the liberal allocation for rural development & infrastructure of Rs 2.66 lakh crores, is a welcome step that will boost the rural economy." VECV, also known as Volvo Eicher Commercial Vehicles, is a major supplier of trucks, which have a major role to play in road and other infrastructure development projects.
FADA President Manish Raj Singhania noted: "Significant infrastructure investments, with an allocation of Rs. 11,11,111 crore for capital expenditure, will have a multiplier effect on the economy. Improved infrastructure is a boon for the auto sector, facilitating better logistics and enhancing the overall consumer experience".
Shamsher Dewan, Senior Vice President & Group Head - Corporate Ratings, ICRA Limited, said, "The emphasis on developing urban infrastructure in certain large cities will also be positive for improving the public transportation network.
V. Vivekanand, President, ICEMA
Managing Director, Caterpillar India Pvt Ltd said," The Budget has touched upon all the important areas that can help the economy and the manufacturing sector grow to the next level, including infrastructure, employment, skilling, research and development, and energy security. With the unchanged capex target of Rs. 11.11 lakh crore, and the series of other announcements including Rs.10 lakh crore proposed outlay for rural and urban housing under PMAY, launch of Phase 4 of PM Grameen Sadak Yojana, and infrastructure and reconstruction assistance for states augur well for the prospects of the CE industry which derives its growth primarily from the infrastructure sector. Overall, it is a very encouraging budget for the CE industry."
Dimitrov Krishnan, Managing Director of Volvo CE India said, " The vision of Viksit Bharat by 2047 highlights the importance of allocating substantial resources for infrastructure development to enhance India's growth trajectory. The proposed increase in capital expenditure of 11.1% to Rs. 11.11 lakh crore for FY2025 will significantly support economic growth and employment. The supportive regulatory policies align with the Prime Minister's vision of taking India to the third largest global economy by 2031.
As per Krishnan, the infrastructure and manufacturing are key priorities in this budget, critical for driving economic growth and job creation. " It is heartening to see the emphasis being given in the Budget to road connectivity across the country, as this is vital for overall economic development. The provision of Rs. 2.66 lakh crore for rural development, including rural infrastructure, will go a long way in creating jobs and generating the growth of the rural economy. The focus on industrial corridors and energy infrastructure aligns with Volvo CE's vision of promoting sustainable development and technological advancement" Krishnan added.
Deepak Shetty, CEO and Managing Director, JCB India Ltd. said, " As always Infrastructure has been a strong area for subsequent budgets which have been announced over the years. This time as well, a provision of 11 Lakh crores, which is 3.4% of the GDP, has been positive for Infrastructure Development which has a multiplier effect on the economy".
"This continued focus on Infrastructure development also creates robust opportunities for us as the Construction Equipment sector, and we look forward to a strong growth ahead in the journey towards becoming the 2nd largest in the world" Shetty added.