ECE industry can grow 5 times by 2015: McKinsey

India Infoline News Service / Mumbai Nov 15, 2007 17:30

The report states that the industry`s revenue and volume have recorded 40% growth year-on-year between 2004 and 2006, reaching US$2.3bn today

Indian Earthmoving and Construction Equipment (ECE) industry has the potential to grow five-fold from its current size of US$2.3bn to about US$12-13bn by 2015, growing at a CAGR of 24%, says the findings of a study conducted by leading management consulting firm McKinsey & Co.

The study named ' ECE Vision 2015: Scaling new heights in the Indian', was carried out for CII and IECIAL and was released yesterday at the CII Excon 2007. The Indian ECE industry is set to experience strong growth, spurred by the country's rapid economic development, according to the McKinsey study.

"The McKinsey report states that the industry's revenue and volume have recorded 40% growth year- on- year between 2004 and 2006, reaching US$ 2.3bn today and uncovers a US $40bn opportunity for the industry between now and 2015," said Vipin Sondhi, Chairman of Excon 2007 and CEO of JCB India.

The study discusses the five trends that will shape the evolution of the industry and highlights the imperatives to realize this opportunity. Of these, four are growth opportunities - investments of US $750bn in infrastructure development; the increasing dominance of price-and-value focused customers; deeper engagement of global equipment manufacturers in India; and increasing opportunities for exports.

However, the trend of increasing product imports from other low cost countries like China could potentially challenge industry growth and is something that the players in the ECE industry need to address proactively, the study reveals.

Conservative estimates suggest that as usual growth will create a market of US $8bn by 2015. But a concerted push by the industry and government alike could result in an additional US $ 4bn opportunity, equally spilt between exports and the provisioning of India specific products.

"For the industry to achieve its full potential players need to embark on three strategic initiatives - (i) introduce India specific products that includes introducing low-priced multi-purpose equipment to attract new customers and to increase mechanization in important areas, adding features to products that make suitable for use in India and launching new applications and products for missing applications; (ii) improve cost positions to better deal with the onslaught of competition from LCCs; and (iii) pioneer efforts to boost exports in areas like engineering and design services that leverage the India's technical prowess," said Adil Zainulbhai, Managing Director - India, McKinsey.

"In addition, companies need to pursue four growth-enabling initiatives to expand the market. These include enhancing the quality, delivery and price of after sales-services to increase share of service revenues from 2% of total revenues to the global average of about 8%; addressing key gaps in financing to catalyze latent demand particularly in rural areas and small towns; expanding dealer and channel network coverage to address buyer fragmentation and quality and proactively strengthening supplier capacities and capabilities," added Rajat Dhawan, Partner and Co-leader of McKinsey's Automotive & Assembly Practice in India.

The study concludes by outlining imperatives for the Government. It emphasizes that to complement the initiatives of industry players the Centre must focus on three fronts - increase availability of trained manpower as at the current pace the industry is likely to face a shortfall of 0.3mn trained operators by 2015; remove tax anamolies to encourage exports and lower tax burdens that impede demand; and institute policy measures that strengthen the industry capabilities.

Key policy measures include - provide tax benefits to players to encourage investments in research and development, establish an industry focused R&D center, incentivize exports by exempting them from excise and local levies; and contain imports of used equipments as done in other emerging market economies.

The study finally states that CII and IECIAL must work with the industry and government to create an enabling environment that results in the desired regulatory changes, and exports the Made in India brand to international shores.

The ECE industry has a critical role to play in making India one of the world's top five economies by 2025. Construction equipment players have a unique opportunity to help realize the potential of this sector and, in doing so, garner their share of the US$12-13bn revenue potential.

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