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Credit rating agency ICRA has said that increasing component localisation is expected to offer an annual opportunity of approximately Rs 25,000 crore to construction equipment vendors by FY30, led by components such as undercarriages and precision hydraulics. Overall, ICRA foresees a jump in localisation levels from 50% to over 70% in the next 5-7 years.

According to the report, the Indian mining and construction equipment (MCE) industry is the third largest in the world in terms of volumes sold, however, it imports nearly 50% of its component requirement (by value) from suppliers based out of China, Japan, and South Korea, among others. Components like hydraulics, undercarriages, and high-tech electronics like electronic control units (ECUs), sensors, telematics, etc are generally imported. These imported components are either technology-intensive parts or require large scale manufacturing to attain economic viability. In addition, certain high tonnage fully built machinery and some steel alloy grades are also imported.

The report further said some of the key factors driving the high levels of imports include – viability issues for the component vendors due to insufficient domestic demand and limited exports (due to cost disadvantage and lagging emission standards for a few equipment categories) and unavailability of certain raw materials (e.g. specialty steel). However, factors supportive of increased industry localisation include increasing domestic demand (CAGR of 12% over the last decade – FY2015-FY2024) and the PLI scheme for complementary sectors like specialty steel and auto components in addition to the shifting geo-political dynamics with the China+1 policy being adopted by the global OEMs to diversify their supply chains. At a macro level, the government has been working towards improving the ease of doing business and creating a robust infrastructure to attract investment and improve the overall competitiveness of the domestic manufacturing industry.