During the past decade, NHAI has built national highways steadily at the rate of about 6 km per day. Despite the best efforts of the government, the pace of road-building has not improved. However, demand for road equipment has been sustained by the construction of state highways, district and village roads.

P Ramesh, Managing Director & Chief Executive Officer, Wirtgen India says, ?The slowdown in the highway sector has affected most of the OEMs as most of the Build-Operate-Transfer (BOT) projects are either dropped, stalled, or delayed and that has affected the business for highway class of contractors. Business for pavers, especially for highway projects has been affected. Also, the depreciation of the Indian rupee by over 20 per cent in the last quarter has made imported machines more expensive and this has led to a reduction in demand, where customers are also looking at used or rental machines.?

He adds, ?During the period 2010-2012, more than 11,000 km of BOT projects have been awarded, but hardly ten per cent of these projects have seen progress, due to the issues mentioned. For BOT projects to take off, it will depend on how fast the government can address the issues like long-term funding for infrastructure projects, land clearance and also about introducing more stringent prequalification criteria for contractors bidding for road projects. Growth in this sector will pick up if the government ensures a good mix of both BOT and EPC projects.?

R Nandagopal, Chief Executive Officer, Construction Equipment Business, Greaves Cotton says, ?The construction industry on a whole has been in the grip of a severe slowdown. Road construction is a key segment that drives both road construction and concrete equipment. The last two to three years have seen very low levels of activity in new road projects and hence, have had a profound impact on CE as a whole and on compaction and concrete specifically. The road sector has witnessed several constraints and financial stress due to the economic slowdown, failing GDP growth, high interest rates and more critically in land acquisition and infrastructure funding.?

?Growth has been stalled due to policy inaction; the slowdown is of our making,? says AM Muralidharan, President, Volvo Construction Equipment. According to him, the land bill could have been better; which in its present stage is more farmer-friendly than project oriented. The resource crunch on the one hand and land availability on the other, have been detrimental to the growth story.

Data from one of the ICRA reports gives an updated status. After awarding 6,491 km of roads in FY12, the road sector witnessed a slump in award of projects with only 1,156 km of road projects being bid out by NHAI in FY13, which is about 17 per cent of the target of 7,000 km set for the financial year. The lower project awards have been on account of weak interest from private sector participants due to difficulty in raising funds, stressed financial position of many developers, delays in getting right of way and clearances, relatively less lucrative stretches in the offering, as well as the economic slowdown which has impacted road traffic in the operational projects. The interest of private players in the Public-Private Partnership (PPP) projects in the sector has waned as is evident from the weak bidding response in the offered projects, stated intent of some prominent developers to reduce their BOT project exposure, lower number of prequalified bidders for CY13, and intent to exit or renegotiate some of the projects awarded earlier. While the decline in interest may be attributed partly to the subdued macroeconomic environment, the weakening of the financial profile of many developers has also led to the lukewarm response to the recent biddings.

Given that the sentiment towards the BOT projects in the sector could continue to remain weak in the short to medium term, NHAI?s initiatives in awarding projects on Engineering, Procurement and Construction (EPC) and Operate, Maintain and Transfer (OMT) basis is a welcome step, as this will unbundle the execution, funding and traffic risks and could stimulate participation from the private sector.

Hopes arise
Despite the prolonged winter, the industry is very positive on the upcoming spring for the industry, hope is on the rise that with the right government at the Centre, it?s just a matter of time that spring will blossom again.

?We are very bullish about India?s growth story. The huge quantum of the infrastructure to be developed over a period of time, tells no other story. Even for the metros to sustain for another 25 years, we need better infrastructure, better connectivity. What we need is a stable government that attracts investors; clear cut policy that could speed up the projects to completion,? says Vijay Sharma, Executive Director, Terex Equipment India.

Samir Bansal, General Manager India, Off-Highway Research observes, ?The future for the road equipment market in India still holds much potential as this sector has a profound and immediate impact on the country?s economic growth. Off-Highway Research is optimistic about the growth in demand for road equipment and forecasts growth at a CAGR of 12.67 per cent over the next five years.?

Raman Joshi, Executive Vice-president, Manitowoc Cranes, Greater Asia-Pacific, says, ?Despite the erratic nature of India?s economic growth, it is continuing in the right direction and we remain optimistic about the opportunities that are out there. Numerous large infrastructure projects are pressing ahead, each of which will improve the country?s ability to operate more efficiently in business terms.?

?The Indian road-building equipment market is worth Rs 800-1,000 crore per annum and is likely to grow at the rate of 10-15 per cent per year. The demand for road-building equipment looks promising. Last year, the road construction equipment market stood at an industry volume of 2,500 machines and it is expected to grow at the rate of 5-10 per cent in the coming years. While we wait for more investments to happen in national highways, there are lot of state highway projects that are picking up in Uttar Pradesh, Rajasthan, Bihar, Karnataka, Tamil Nadu and the North-East. We are confident that there is a lot of work to be done. We expect the market to be at its peak in 2015-2016,? says Rohit Punjabi, Assistant Director (Strategy and Marketing), Liugong India.

On a positive note, Muralidharan adds, ?Hope is always there but it is not reflected in the market. We witnessed some development in December in mining, especially on overburden coal. The retail market is still down; compared to last year, the road sector is not yet up.? Muralidharan adds, ?We see some state highways projects coming up especially in UP, Rajastan, Tamil Nadu, Karnataka, Bihar; currently the total market volume is 70 per cent from state highways and 30 per cent from NHAI projects.?

Prantik Saha, Marketing Manager - Road Construction Equipment, Atlas Copco opines, ?In the next five years and beyond, we believe there will be a realisation of the huge untapped potential in all product segments of the road equipment sector in India. Compactors, pavers and tandem rollers, equipment such as planers, feeders, etc, will also get an opportunity to deliver higher quality roads in India. Recent surveys on road development in India indicate that in developing markets like ours, road infrastructure will be an important component to support the growth opportunities.? Prantik adds, ?The North-East in particular, has very few roads and very low connectivity. Looking at current activities and projects, this region is a major focus area with plans in place by authorities and quick turnaround time for awarding projects. Today, demand for equipment is also increasing gradually from this part of India.?

Ramesh adds, ?Work on state highways for certain states like MP, UP, Rajasthan, has seen a pick-up in activities and that is the reason why the road equipment sector is able to sustain itself. However, the next one year will continue to be challenging for this sector as it takes time for the various steps taken by the government to translate into work on the ground. For the healthy growth of the sector, the requirement is to clear the bottlenecks in infrastructure sector and in particular, the road sector.?

Demand-supply
Highlighting the supply-demand scenario, Bansal had this to say. ?Demand for road equipment comprising asphalt finishers, compaction equipment and motor graders, is inevitably linked to the level of road building activity. Sales peaked in 2007 with the implementation of many rural road programmes but remained low thereafter, following a slowdown in the implementation of national highway projects.?

Bansal adds, ?Demand for motor graders depends on the execution of major road projects as their use is very limited on the district and rural roads. Therefore, its market has witnessed a major decline from a peak of around 550 units in 2007-08 and has halved to around 275 units in 2013 due to the ongoing problems with execution of national highway projects.?

According to him, the demand for compaction equipment has declined from a peak of over 3,200 units in 2007 to around 2,500 units in 2011 and has remained steady thereafter. Similarly, the market for asphalt finishers declined from a peak of 925 units in 2007 to around 700 units in 2011 and has subsequently remained at that level. This demand is sustained mainly by the on-going road construction activity in the states. Bansal comments, ?The asphalt finisher market is dominated by locally manufactured wheeled machines. Mechanical drive is popular in the smaller under 5.5 m finishers, mainly on account of price, while the larger machines invariably have a hydrostatic drive. The introduction of stricter engine emission standards by the government and mandatory RTO registration of machines has forced some of the smaller domestic manufacturers out of the market, which is consolidating towards hydrostatic, multi-purpose machines that are fitted with sensors.?

Muralidharan states, ?The excavator market is down by 25 per cent compared to last year in the last six months. The retail market is down; there are some new development in quarrying and dimensional stones, and sand mining it will be lower than 2012; growth is positive, but not enough. Coming to the wheel loader market, the overall market has is down by 10-12 per cent.?

?The market demand for pavers, especially 9m and above has come down drastically. Today, the volume is less than a hundred units. The state highways and rural road projects still do not opt for hydrostatic pavers due to lack of specification, and the overdependence on mechanical pavers has resulted in low quality roads,? Muralidharan adds.

Amit Gossain, Vice President - Marketing & Business Development, JCB India says, ?Supported by the Pradhan Mantri Gram Sadak Yojana (PMGSY) and other smaller district roads as well as road maintenance, the road construction sector continues to do comparatively well. As a result, the road construction equipment segment is showing steady improvement. This remains the only equipment sector that is growing marginally. Demand for other equipment segments like backhoe loaders and excavators has declined due to the overall economic slowdown.?

Rajen Khoda, Director Sales, Asia & Middle East, Powerscreen says, ?Overall, the roads sector has not been without challenges in the last two years. The challenges have been slow project execution, drying credit lines and lower government spending on new projects. Regulatory issues, investigation, and judicial intervention too, have certainly had an impact on the commencement of new projects.? On an optimistic note, Khoda adds, ?We have seen some positive initiatives taken by the government and NHAI, and we are confident that it will continue in the coming months and years. We have certainly seen some movement on state highways projects. Crushers and screens always play a crucial role in these projects and we have noticed a requirement for the smaller and more compact models in our range.?

Viraj Parthi, Country Manager, Terex MPE says, ?Infra projects, especially roads, have not taken the ambitious route that was envisaged for them. There are some issues that the industry as a whole, is facing. Liquidity crunch or unavailability of funds is the main concern for major companies. Almost every company is running short of funds. Second, many non-viable road projects have been awarded. What looked attractive when the economy was going well has now become challenging with the revised environmental conditions. This is the reason road developers ask for renewed contracts. This has delayed project executions and it will not get back on track until it is addressed and a solution is in place.? He adds, ?We do not estimate any drastic changes in the market and expect a flat year in 2014 as well.?

?The major part of crushing and screening equipment demand has been originating from infrastructure, road projects and commercial quarry owner segments,? says Somnath Bhattacharjee, President & Chief Executive Officer, Material Handling Solutions & Equipment Projects Solutions Business, TIL. ?Most of the new project completion periods in the highway sector have been lowered to 24 months from 48 months. Many state governments are banning or putting restrictions on riverbed sand quarrying. With proposed construction of road network, railway network, infrastructure development influencing the higher demand of aggregates, besides growth in the mineral mining operations it is likely to trigger demand and usage of higher capacity crushing and screening equipment, in order to be able to do more with less number of equipment.

Positive vibes
There are many steps initiated by the government to stem the tide. The recent Vote-on Budget has brought some positivity to the industry, especially the manufacturing sector. Says Amit Gossain, who heads iCEMA, ?We, as a construction equipment (CE) industry, are happy with the cuts announced by the Finance Minister. This will certainly help this important industry build infrastructure that is down by over 30 per cent in the last two years. The announcements in the interim budget are favourable. The cut in excise duty from 12 per cent to 10 per cent and withdrawal of exemption from Countervailing Duty (CVD) on six road construction equipment will give some relief to the industry.? He adds, ?However, given the importance of the industry, the capacities already created and its ability to generate more employment and entrepreneurs, excise duty reduction should have been higher, to the tune of 4 per cent. Apart from that, the industry will gain the much needed momentum if the government accelerates project execution. India?s vast infrastructure needs are growing, and this presents enormous opportunities for the industry. However, the gap between the demand and supply is constantly widening. We need a faster mechanism to resolve issues like financial closure, land acquisition, environment and forest clearance etc.?

Going forward
With strong pipeline of road projects to be awarded by NHAI and state governments over the next three to four years, the opportunities for both developers and contractors will be sizeable, which augurs well for the equipment suppliers. Says Nandagopal, ?According to RBI, the forecast for the growth in real GDP in the next five years is 7.5 per cent and for the next ten years, the GDP is expected to grow by 8 per cent. Considering that infrastructure development is a direct result of GDP growth, by 2017, the growth of road equipment division will be around 15 per cent and may increase to 20 per cent by 2020.?

Opportunities Galore
The North-Eastern landscape, with very few roads and very low connectivity, hitherto neglected, has seen a lot of activity in recent years. Looking at current activities and projects, this region is a major focus area with plans in place by authorities and quick turnaround time for awarding projects. Today, demand for equipment is also increasing gradually from this part of India.

Says Amit Gossain, Vice President - Marketing & Business Development, JCB India, ?In recent times, the North-East has flourished as an important business destination, as domestic as well as international companies entered the market. The Indian government has set up a Ministry of Development of North Eastern Region (MDONER) which acts as a facilitator between the central ministries and the state governments of the Northeast region in the economic development process. With the government planning major infrastructure boom in these states, we foresee lot of potential for businesses to grow and flourish. The government plans to make investments in roads, railways, air connectivity, cyber and telecom connectivity and power.?

According to Nandagopal, the government has been working to expand the rail, road and air connectivity in the NE states which has poor connectivity as compared to the rest of India. Infrastructural development is vital for the strong socio-economic development of the region and its integration to the rest of the country. He adds, ?The Ministry of Road Transport and Highways have taken up the Special Accelerated Road Development Programme (SARDP-NE) for the development of a road network in the north-eastern states of the country. The project is in the implementation phase and the target time for completion has been set for June, 2016. The objective is to provide road connectivity to all the district headquarters, backward and remote areas of the Northeast. This project if completed successfully on time will be a major boost for the long awaited infrastructure advancement in these states.?

Says Rohit Punjabji, Assistant Director (Strategy and Marketing), Liugong India? The road infrastructure is relatively deficient in the NER although the region?s road density per capita is significantly higher when compared to the rest of the country. Given the low density of population and the hilly terrain of the region, this is the expected outcome. To address this, the Ministry of Road Transport and Highways (MORTH) has been paying special attention to the development of national highways in the region. The ministry has earmarked ten per cent of the total allocation for the NE region. The total length of NHs in the region is 8,480 km and these are being developed and maintained by three agencies-the state Public Works Departments, Border Road Organisation (BRO) and National Highways Authority of India (NHAI). Sufficient funds have also been allocated in building the road infrastructure in the NE states.?

Positive Moves

• Setting up of the Cabinet Committee on Investments (CCI) to de-bottleneck and fast-track big ticket infra projects.
• The Draft Public Authority (settlement of disputes) Bill 2013 which seeks to set up an institutional mechanism that can provide speedy resolution of disputes related to public contracts or PPP project.
• The de-linking of environment and forest clearance, and proposal to ease raw material (aggregate) supply have, which are expected to aid project execution.
• The proposal to set up an independent regulator.
• Given that the sentiment towards the BOT projects in the sector could continue to remain weak in the short to medium term, NHAI?s initiatives in awarding projects on EPC and Operate, Maintain and Transfer (OMT) basis is a welcome step, as this would unbundle the execution, funding and traffic risks and could stimulate participation from the private sector.
• RBI has allowed loans to PPP road projects to be treated as secured subject
• to certain conditions, which is expected to improve lending to the sector to
• some extent.
• Creation of Infrastructure Debt Funds (IDFs) and the active role played by India Infrastructure Finance Company Ltd (IIFCL) will assume greater importance in channelising the much needed long-term debt funds into this sector.
• NHAI has come up with a back-up plan for over 23 stranded highway projects where the initial contracts will be cancelled and the projects would be bid out afresh in smaller stretches, as the response from investors to develop smaller stretches seems better.

Case study: In situ Cold Recycling
Project: Rehabilitation of a 43-km long motorway of the Golden Quadrilateral project between Chennai in Tamil Nadu and Tada in Andhra Pradesh.
Contractor: L&T Chennai Tada Tollway (CTTL), a hundred per cent subsidiary of Larsen & Toubro.
Technology: In situ cold recycling.
Equipment used: WR 2400 cold recycler, Hamm 3520 and 311 compactors.
Equipment supplier: Wirtgen India.
L&T opted for technically advanced yet cost-effective rehabilitation using cold recycling technologies from the Wirtgen Group. L&T processed a total of approximately 142,000 sq m from October 2012 to April 2013 with a WR 2400 cold recycler and Hamm 3520 and 311 compactors. In the process, the company used the resources from the extremely worn road surface to carefully create a durably solid base course that only required covering with an asphalt layer 4 to 5 cm thick.
Advantages: In situ recycling requires only small amounts of new aggregates or asphalt. This was a crucial advantage in rehabilitating the NH-5 as there are no quarries in the Chennai region. ?Moreover, only small amounts of cement, water and bitumen are needed. This yields tremendous savings in transport costs,? says Arashdeep Singh, Wirtgen India.