The market should grow 27 per cent in 2021 due to pent up demand

Many countries are encouraging shifting of manufacturing bases out of China to alternative locations, which could benefit India.

Samir Bansal, Manager - India, Off Highway Research

Brief us on the adverse impact of the pandemic on the Indian Economy in general, and on the construction and mining sector? 

The Indian government has been proactive in its efforts to contain Covid-19 pandemic and imposed a nationwide lockdown on 25 March 2020, initially for 21 days, which has been extended to 40 days until 3 May. This has brought almost all economic activity (except essential services such as security, healthcare, food, utilities and civic services) to a grinding halt.

The country was already struggling to maintain the pace of economic growth and quarterly GDP (gross domestic product) slid to several years' low during April-December 2019. The government is being forced to increase expenditure on healthcare and social disbursement due to Covid-19, which will adversely affect allocations for other sectors that contribute to generate demand.    

According to the Economic Survey of India, published on 31st January 2020, the country's GDP will grow at 6.0-6.5 per cent in the year ending March 2021. However, all global rating agencies have slashed India's GDP forecast to 0-2.5 per cent for the current year due to the Covid-19 pandemic and the lockdown.         

How this has reflected on the construction and mining equipment segment?

The construction equipment industry had showed some signs of recovery in the first two months of 2020 after declining by 15 per cent in 2019. However, after an unprecedented national lockdown, initial estimates suggest that it may take over six months for normality to return to the economy.              

To what extent the different products market have contracted?

According to Off-Highway Research's current estimates, the construction equipment market is now expected to decline by 19 per cent in 2020, assuming that the lockdown will not be extended beyond 3 May.    

How do you assess the steps initiated by the RBI and the central government so far to kick start the revival of the economy?

RBI took unprecedented steps on 27 March to reduce the financial burden and maintain liquidity in the financial system through CRR cut, repos operations and MSF revision to infuse Rs3.74 trillion in the financial system. Further, targeted long-term repo operations (TLTRO) 2.0 worth Rs 500 billion were announced to benefit NBFCs on 17 April and cut the reverse repo rate to 25 basis points to 3.75 per cent. It also revised the asset classification norms due to the moratorium period of loan repayment in lockdown.    

The government of India is also monitoring the situation closely and announced a social package of Rs1.7 trillion (US$22.7 billion) for the poorest section of the society which has been hardest hit, along with insurance cover for frontline medical personnel in the last week of March.     

What are the major challenges that you see in the construction and infrastructure sector? 

It is very difficult to predict in the current uncertainty, as the exit from the lockdown may be done in stages, travel will remain restricted for some time, manpower availability will be an issue and the oncoming monsoons may delay purchase decisions. Furthermore, project funding will remain a challenge despite an expected stimulus, and there will also be a tendency to conserve resources. However, one needs to wait for a return to normality return, and then evaluate the situation and government investment plans.     

The Covid -19 can catalyse India to become a manufacturing hub especially for components. What is your take on this?

As reported in various statements, many countries are encouraging shifting of manufacturing bases out of China to alternative locations, which could benefit India. However, only time will tell what extent India is able to capitalise on this opportunity by providing a conducive investment environment as it would have to compete with other countries.          

How do you foresee the short and midterm growth prospects? What are the silver linings?

Normally every downturn is followed by a very sharp recovery and the construction equipment demand should grow strongly after normalcy returns. The market should grow 27 per cent in 2021 due to pent up demand, and then grow 8-10 per cent thereafter to peak sales of 102,250 units in 2023.           

What sort of Central / State government initiatives that the industry needs for a faster revival?

Even when the government decides on opening the lockdown in stages, starting with certain unaffected pockets, maintaining the supply chain will be a challenge. Migrant workers, who are the key element in carrying out economic activity across sectors, have gone to their hometowns and travel is expected to remain restricted at least for the next three months.              

Reviving the economy along with health and safety of the majority are currently the biggest challenges, and both central and state governments will have to work in tandem to restore confidence. A stimulus package for the economy may be announced by the government once things get back to normal but managing funds will be a daunting task.        

Maintaining fiscal deficit targets, controlling inflation, arresting falls in the currency, ensuring jobs and creating fresh demand in the economy are some of the tasks ahead, apart from ensuring health and safety. Exports are most likely to be hit severely, as most of the nations around the world are under lockdown.

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