After three years of inactivity, construction-equipment sales started picking up from October-November last year. The growth has been a robust 40 per cent since January this year.

But just when the outlook appeared sunny, demonetisation punctured the growth in the past one week.

“There has been a slow-down over the past week. But, we think it’s temporary. If the government keeps offering projects, things will stabilise soon,” says Sandeep Singh, Managing Director of Tata Hitachi Construction Machinery Company, a 60 per cent JV of Japanese giant Hitachi.

‘All white’

According to Singh, it is the restriction on cash withdrawals that has impacted his customers, not involvement of black money in equipment purchases. “Equipment sales are all white,” he says.

Dheeraj Panda, Vice-President and Business Head of Excavator Unit of Sany Heavy Industry India Pvt Ltd, the Indian arm of China’s Sany Group, also toes a similar line.

Sany started assembling and part-manufacturing of construction equipment in India in 2013, and has been consolidating its presence in the 20-tonne excavator market that has multiple use, staring from stone quarrying and cleaning river beds to road construction.

The company reported 140 per cent growth in sales on a year-on-year basis to 950 units, between January-October 2016. The growth is high owing to a small base.

“We will see some slump (in equipment sales) following demonetisation, but it will be very temporary,” Panda says. He further adds that 95 per cent of equipment sales being loan financed, there is barely any play of black money or cash transfer.

Black is king

But this is far from the truth. Black surely plays a role in the construction sector.

According to finance companies, there are approximately 60,000 equipment buyers in the country. Of them 1,000 are corporatised big-fleet owners. Another 10,000 operate in the SME segment. The rest are retail purchases — meaning small-time buyers.

The problem starts right from the SME segment, as a good percentage of buyers, especially in segments such as sand mining and stone quarrying, pay the 20 per cent margin money in cash. For a ₹50-lakh excavator or tipper, this accounts for nearly ₹10 lakh.

This is important because the rest of the operation in stone quarrying and sand mining is in all-cash. Naturally, they look for ways to dump cash.

Real estate, which also buys such equipment, is another example.

“Cash is an integral part of equipment business,” a source in a construction company told on condition of anonymity.

Related Topics
comment COMMENT NOW