The recent reduction of repo and reverse repo rates by 50 basis points each (from 8.5 to 8 per cent) for repo rate and from 7.5 to 7 per cent for reverse repo rate) is seen as a welcome development as this initiative may spark off fresh investments, especially in the infrastructure sector, which is highly interest rate sensitive. But industry experts feel that fiscal measures should play a more important role than monetary measures and RBI's efforts need to be supplemented by Government action on various policy fronts.

The announcement that RBI will notify the ECB guidelines for power, road and highways is a welcome move in the right direction. Liberalisation in the ECB policy for sectors facing a credit crunch has been announced by the FM during this year's Budget. Guidelines on ECBs are in pipeline and leading players are already in talks to bring in low cost capital.

The investment in road sector is expected to grow at 16 per cent per annum which would translate to an annual growth in demand of aggregates of nine per cent per annum. Therefore, the expected demand of aggregates is expected to increase by almost 50 per cent by 2016. The current economic trend shows high demand in the aggregate sector, especially roads sector.

Government's commitment to complete 7,300 km of roads in 2012-13 spells out the demand for approximately 39 crore tonne of aggregate. And if we calculate vide a 200 tph plant which produces approximately 600,000 tonne per annum - requirement of plants will be 650 units of 200 tph plants for the roads and highways sector alone. In the recent past, there has been high demand for sand and concrete used for road / highway projects. This has provided a positive impetus for demand of crushing equipment too.

Even though the budget had put more emphasis on infrastructure development with customs duty reduction on a number of equipment, the excise duty increase and corresponding increase in the customs duty seems to have resulted in a setback to the expectations of the construction equipment manufacturers who were looking for certain impetus for growth enablers for the infrastructure sector. Moreover, with the increase in excise duty for locally produced equipment, the cost to the customer is expected to increase by two to three per cent. The customers would not have budgeted for this increase and their decision for equipment purchases may get delayed.

On the global front, sales of construction equipment by the world's 50 largest manufacturers grew 25 per cent last year to $182 billion, according to the annual Yellow Table survey by KHL Group. This was a record for the industry, surpassing the previous high of $168 billion, set in 2008, prior to the global financial crisis.

So, there is some policy leading the way but given the state of the industry which has been slowing due to debt stresses on contracting companies, capital cost needs to come down substantially. The current dose offered by RBI is like offering a bandage for a fractured limb.