Construction Equipment Growth Projections 2017 Pre vs post GST
According to reports and statistics from the ICEMA (Indian construction Equipment Manufacturer’s association) from the pre GST era the sales volumes are expected to reach 96,730 units in FY18 preceded by the sales volumes crossing the 2011 levels in FY17 at a whopping 52,100 units being sold. The sales volumes saw a 41.5% growth in FY16 and 2017 is expected to exceed the FY16 figures by a good margin. By 2017 the overall growth rate in the industry is expected to be at CAGR 21% if not more.
Despite the Demonetisation in late 2016, experts across the industry are of the opinion that a healthy 30-40% growth is still expected despite the speed bumps that might come in the form of changes in various government policies.
As of 1st July 2017, GST became of law of the land across the Country, bringing all goods and service on the same platform of the single tax structure. Under GST regime almost 80% of the construction and heavy equipment machinery fall under the 28% tax bracket which is slightly higher than the previous taxes that were applicable to the sector. The list of such equipment majorly include wheeled loaders, soil compactors, concrete mixers, road equipment, crushers and excavators. Even off-road equipment such as mining tippers, excavators, dozers, graders, shovels and road rollers; on-road equipment including trucks, commercial vehicles, low-bed trailers, semi-bed trailers, trailers and lifting equipment such as cranes, forklifts, self loading and unloading equipment, lifts, escalators and conveyors will have 28 per cent GST levied on them.
While the increased tax rate might cause reluctance in buyers, it will be over come by the long term benefits and money making opportunities to the robust activity going on in the infrastructure sector. The government’s increased spending for the infrastructure will fuel the growth of the heavy machinery industry especially the market for earthmoving equipment which hold a larger market share even in the construction equipment industry. The plan to increase the length of new roads created per day to 40km/ day will also have beneficial effects on the industry once the market has absorbed the initial shock of the announcement of GST.
GST also means that the equipment rental and leasing industry is now free of dual taxation of sales and service taxes which will eventually lead to the growth of the industry which is in a very nascent stage as of date. The standard GST rates will mean more players being interest in investing money across the infrastructure and eventually the construction equipment sector and even attract foreign investment in addition to local investment across various scales of projects.
Logistics and raw materials are areas where the OEM’s are set to benefit from GST. A standard tax structure means that the companies wont have to bear the brunt of varied taxes and tax rates that were previously the norm and the cause of added expenses across the sector.
A standard GST system will ensure smooth flow of credit across the sector which will eventually lead to improved flow of funds and directly impact the growth of the industry on a positive note. Reduction in the cost of construction material by upto 5% would mean that more credit is available for investment in equipment and work expansion leading to increased sales.
However, a single tax system across states also means that the same standard tax rate will be applicable across the country in the various states leading to easier and faster movement of goods across the country. The GST regime also means that equipment manufacturers will benefit from reduced taxes on raw materials and savings in logistics if not more. All in all, the overall increase in the tax on the equipment is set off by the savings in the manufacturing and logistics legs of the process.
The implementation of GST is expected to have a snow ball effect in the positive direction wherein the eventual out come will be increased transparency of transactions, increased number of transactions across sectors and the whole industry eventually being incorporated in the main stream economy which will in turn lead to better reforms and ease of business.
The actual impact on the bottom line is expected to be marginal across the industry and the Pre GST forecast is expected to hold despite the temporary speed bump of the knee jerk reaction to GST being rolled out. It is just a matter of time,once the industry has absorbed the initial shock of the new changes in the tax structure, it will again be on its way up to reach newer higher heights of success.