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Equipment: Skid or Steer?

The Indian construction equipment industry is booming apace with the hectic infrastructure building taking place across the country. But what are the ground realities for actual end users of the equipment? CONSTRUCTION WORLD finds out.

Sometimes a rough estimate tells the whole story. As per research conducted by Foundation of Infrastructure Research Studies Training (FIRST), last year India’s construction equipment industry is estimated at $ 2.29 billion of which 50 per cent is organised.

That’s a lot of business going on. It’s not surprising considering that construction activities account for 5-6 per cent of the country’s GDP, that 40-50 per cent of the capital expenditure is through construction-related activities, and that the construction industry is the second largest employer in India. What’s more, the building will just go on and on, considering the government’s thrust on infrastructure – roads, dams, ports, airports, housing. Hence the rate of growth is what is drawing all international majors here. Bertel Langenskiold, President and CEO of Metso Minerals recently on a visit to Mumbai, stated in an exclusive interview to CONSTRUCTION WORLD, “For the National Highway Develop-ment Programme, the method, technology, and the labour employed are comparable to global standards. We also offer some of our biggest machines here for certain purposes.” (Read complete interview on Page 36.)

To be sure, every project on the anvil in India requires a whole lot of equipment. And the numbers are staggering. Consider another rough estimate: just for the National Highway Development Programme (NHDP), equipment worth Rs 1,500 crore to Rs 2,000 crore needs to be produced or imported for deployment, for a per annum work estimate of Rs 10,000 crore.

The choices
Now, there are a lot of equipment manufacturers out there putting out a lot of equipment into the market. To say construction companies have enough choices would be a classic understatement. But the capital-intensive nature of construction equipment ensures that making the right choice is a tad more complicated than, well, choosing the right soap at the grocery store. It’s a hard decision that could play a pivotal role in the successful completion of a project.
A construction company or contractor can secure equipment in three ways: buy, rent or lease. “Buying guarantees control of machine availability and mechanical condition, but it requires a continuing sequence of projects to pay for the equipment,” says SA Reddi, Deputy Managing Director, Gammon India, an 85-year-old construction organisation with a continuity of major projects under execution. “Rental is particularly advantageous if the job is of a short duration or if the company does not foresee a continuing need for the particular type of equipment in question. Rentals are also used to test equipment prior to a purchase decision. And a lease is a long-term agreement for the use of an asset. It provides an alternative to direct ownership. The advantage of a lease is that the lessor provides the management and service thus freeing the contractor from hiring mechanics.”

Another trend on the rise in India – prevalent overseas for some time – is the purchase of used or reconditioned heavy equipment. Original equip- ment manufacturers (OEMs) or their subsidiaries undertake rebuilding of used equipment including exchange of components. During rebuilding, electrical and transmissions systems are checked and replaced and such equip- ment is offered with warranty at substantially lower costs. Many financial institutions like US Export-Import, according to Reddi, back such equipment by giving loans for such purchases. Used equipment is available for sale and can be accessed through the Internet. In fact, many cities in the developed world have started public auctions for selling such equipment – you can participate in them physically or online.