India’s construction equipment sector faces a tough battle as it takes on cheaper imports from China and a slowdown in government infrastructure spending.
09 Feb 2026 | 219 Views | By Shahkar Abidi
Something clandestine unfolded at Mumbai's busy Indira Dock in the intervening night of October 31 and November 1. Customs inspectors, on a routine check, spotted three Chinese wheel loaders in an open yard, imported by an Indian firm. Each carried a QR code declaring a payload of 7,000 kilograms, the ...
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Something clandestine unfolded at Mumbai's busy Indira Dock in the intervening night of October 31 and November 1. Customs inspectors, on a routine check, spotted three Chinese wheel loaders in an open yard, imported by an Indian firm. Each carried a QR code declaring a payload of 7,000 kilograms, the upper limit for triggering safeguard duties on such machines from China.
By the next day, the codes had vanished. In their place: markings for 7,100 kilograms, just enough to dodge the tariffs. Wheel loaders, with their front-mounted buckets on lift arms, are workhorses for construction sites and mines. Investigating officials reckon this ploy evaded Rs 2.5 crore in duties, hinting at a broader under-invoicing racket amid India-China trade tensions.
This sleight-of-hand connects directly to a darkening mood in India's construction equipment (CE) sector. The episode is suggestive of how protectionist walls, meant to shield local makers, are routinely breached, fueling a 10% domestic sales plunge in the first nine months of FY26.
The Story in Numbers
Domestic CE sales saw a degrowth of around 10% to 81,566 units in the current financial year so far compared to 89,244 units in the same period last year. This is attributed to slower infrastructure activity, project execution challenges, unavailability of finance and near-term subdued demand in key segments. Exports, however, surged strongly, reinforcing India's competitiveness in international markets.
In Q3 FY26, according to the data collated by the Indian Construction Equipment Manufacturers' Association (ICEMA), an apex lobby body, total CE sales, including domestic and exports, stood at 35,891 units, a 9% YoY decline compared with Q3 FY25. Earthmoving equipment—the largest segment— registered a decline of 9%. Material handling equipment sales fell 10%, concrete equipment sales were down 9%, road construction equipment declined 7% and material processing equipment sales shrunk 1%.
While domestic sales reduced by 10%, exports grew by 28%, cushioning the overall industry decline to 5% in the first nine months of FY26 with a total of 94,035 units. The worst part, according to the industry captains, is that the decline happened despite the presence of unauthorised exports in the reported numbers.
If we take out those, then the decline in the industry is even more severe. Deepak Shetty, President, ICEMA and CEO & Managing Director, JCB India Ltd., offered a picture of the growth reality: “Growth significantly dependent on infrastructure development projects, where we experienced some headwinds.”
A Perfect Storm
The industry captains highlighted that a confluence of negative factors arrived simultaneously. At the forefront is the visible deceleration in major government-sponsored projects due to the general elections held in mid-2024. The National Highways Authority of India (NHAI), traditionally the primary engine of demand, has been a significant drag, with a marked reduction in projects being executed on the ground.
Rating agency ICRA, providing a perspective on the situation, forecasts a significant slowdown in India's road construction, projecting the Ministry of Road Transport and Highways (MoRTH) will achieve an execution of 9,000-9,500 km in FY2026. This translates to a pace of 25- 26 km per day, which would be the lowest daily execution rate in the last five years.
The revised estimate, down marginally from the earlier forecast of 9,500–10,000 km, is attributed to expectations of lower execution in the current year, driven by extended monsoon periods and a decline in project awarding over the past two years, FY2024 and FY2025. It is important to note that even this anticipated slowdown follows a 14% year-on-year drop, where execution fell to 10,660 km in FY2025 from 12,349 km in FY2024.
Concurrently, project awarding by MoRTH in FY2025 is estimated to be flat year-on-year at 8,000- 8,500 km, a figure significantly lower than the awards seen between FY2021 and FY2023. Furthermore, the ambitious Bharat Mala road-building initiatives have faced significant delays or slowdowns.
The industry is also grappling with arbitration, the shorthand for long-winded legal disputes over contracts, which has left significant capital stuck in the system. Shalabh Chaturvedi, Managing Director for India and SAARC at CASE Construction Equipment, describes it as a “perfect storm,” a confluence of negative factors arriving simultaneously.
Cost of Welfare
This institutional inertia is compounded by a fiscal tugof- war at the state level. The industry observers highlight a concerning trend where state finances are becoming stretched due to a proliferation of welfare schemes. Funding that was previously earmarked for infrastructure development is believed to be getting diverted to fulfil electoral promises, creating a cascading impact that dries up the liquidity needed for construction activity.
Without the liquidity provided by government disbursements and clear project timelines, the buying activity for equipment has slowed to a crawl. Adding further pain to injury, some states have imposed additional "infrastructure surcharges" of as much as 9% to fund the aforementioned welfare schemes, further dampening affordability. "
The shortage of liquidity has made the going tough," said a top executive of another CE manufacturing company, stating that they have been raising their concerns regarding the slowdown with the government on this at various forums. The seriousness of the situation can be gauged from the statistics available with PRS Legislative Research, which suggests that over the last few years, several states that have implemented unconditional cash transfer schemes have seen a deterioration in their revenue balance.
The number of states providing largely unconditional cash transfers (UCT) to women has increased from two states in 2022-23 to 12 states in 2025- 26. UCTs aim to empower women from economically weaker groups by offering them monthly financial assistance through the Direct Benefit Transfer mode.
According to 2025-26 budgets, states are collectively estimated to spend Rs 1,68,040 crore (0.5% of GDP) on UCT schemes for women. States such as Assam and West Bengal have increased the allocation towards these schemes over the revised estimates of 2024-25 by 31% and 15% respectively.
Among the 12 states implementing UCT schemes, six have estimated a revenue deficit in 2025-26. That is, all other things remaining constant, these cash transfers result in Karnataka moving from a revenue surplus of 0.3% of GSDP to a revenue deficit of 0.6% of GSDP. Similarly, these transfers also reduce Madhya Pradesh’s revenue surplus from 1.1% of GSDP to a marginal 0.4% of GSDP.
RBI (2024) had highlighted that the sharp rise in expenditure on subsidies and cash transfers to farmers, youth, and women in states can cause stress to their finances. It recommended rationalising such spending since it can reduce the space to incur other productive expenditure in the state.
Importantly, unconditional funds are allocated based on each state’s share in central taxes, as recommended by the 15th Finance Commission. However, the share of unconditional loans allocated to states under the scheme has reduced from 80% in 2022-23 to only 38% in 2025-26. With a lower share of unconditional funds available, states may have limited flexibility in determining their capital spending priorities.
Cost of Clean Air
The green transition, while environmentally necessary, has arrived with a hefty bill. The industry’s transition to Bharat Stage V (BS-V) emission norms, essentially the Indian equivalent of global clean-air standards, has fundamentally altered the cost structure of wheeled equipment, such as loaders and backhoes. Experts point out that this migration has not only increased the cost of production due to more sophisticated engines but also widened the regulatory net.
Under the previous Bharat Stage IV (BS-IV) regime, the threshold for emission compliance was set at engines above 50 horsepower (HP). Equipment falling below this power rating operated under the older, significantly cheaper BS-III technology. However, the arrival of BS-V has seen this threshold plummet to 25 HP. The new mandate practically covers almost 95% of the entire construction equipment industry.
The resulting price hike has been a hard pill for the market to swallow, particularly when demand is already tepid. Furthermore, the rural economy, which typically accounts for 60% to 70% of the demand for versatile machines like backhoe loaders, failed to provide its usual safety net in 2025. While the monsoon was robust, its prolonged nature proved to be a double-edged sword.
Excessive rain during the peak festive season of Navratri and Dussehra prevented sites from being ready and stalled dispatches. Moreover, while other sectors found relief in GST rationalization, the construction equipment sector remained dry, stuck at an 18% tax rate with no positive momentum from the treasury.
Additionally, the benefits of GST reductions in the agricultural sector, such as tractors dropping from 12% to 5%, actually worked against the construction equipment industry. Rural customers diverted their limited disposable income toward cheaper tractors, cars, and white goods.
Perhaps the most stinging critique offered by industry insiders is the disparity within the same market regarding which machines are actually required to be clean. Currently, the BS-V mandate applies strictly to wheeled equipment such as backhoe loaders, wheel loaders, and vibratory compactors.
Conversely, crawler equipment, including excavators and dozers, remains largely outside this emission ambit, often operating at Stage 0, 1, or 2 levels. This kind of disparity within the same market creates opportunities for market inefficiency to creep in, and just antidumping duty is not going to solve the entire challenge.
A Turnaround in Sight
Despite ongoing challenges, the industry emphasises that a meaningful revival will depend on expediting project contract awards in various Infra segments like roads and highways, railways and others, faster onground execution, timely fund disbursements, and a supportive policy environment to restore buyer confidence and sustain investment momentum in the coming quarters.
The industry is also looking forward to government support to migrate supply chains to India for an Atmanirbhar Bharat approach for a foundational industry such as CE. Perhaps a significant business transition happening in the CE industry is the increasing adoption of the "Equipment-as-a-Service" (EaaS) model.
In a climate where interest rates remain high and cash flow is erratic, many contractors are eschewing the traditional burden of capital expenditure (Capex) in favor of a "pay-per-use" operational model. Volvo CE’s EaaS business has crossed the Rs 100 crore mark this year, demonstrating a growing appetite for micropayments over massive loans.
ICRA, on its part, anticipates a pickup in awards to 9,000-9,500 km in FY2026, supported by an expected improvement in the latter half of the year following a recent ministry directive. This directive mandates that projects can only be awarded after securing 90% right-ofway, forest clearances, and necessary General Agreement Drawing (GAD) approvals for bridges.
Secondly, there has been a visible resurgence in mining demand starting in October, primarily driven by coal and metal mining. This has necessitated a shift in product strategy as the seasoned contractors are no longer satisfied with general-purpose machines but are moving toward bigger assets like 75-ton and 95-ton excavators. "The demand for mining machines is shifting from smaller to bigger," said Dimitrov Krishnan, Managing Director, Volvo Construction Equipment India. Shetty of ICEMA remains optimistic.
"At a broader level we remain hopeful of domestic demand coming back as infrastructure development is a consistent focus area for the government, particularly rural infrastructure, which is a key growth driver for our Industry" he remarked, while adding that the Indian CE Industry is the third largest industry in the world, employing more than 3 million people directly and indirectly, thereby playing an important role in employment generation and nation building.
Seconding Shetty, Ramesh Palagiri, President-Designate, ICEMA and Managing Director & CEO, Wirtgen India Pvt. Ltd., stated, “Although domestic demand has been impacted by slower project awarding and execution, we are optimistic of a turnaround. With strong export performance and the hope of front-loaded awarding of projects and higher infrastructure capex in the upcoming budget, we believe domestic CE demand will strengthen and contribute to a sustained industry recovery in 2026.”
Vivek Hajela, Convener, ICEMA Industry Analysis & Insights Panel and Executive Vice President & Head, Construction & Mining Machinery, Larsen & Toubro, stated, “While execution pace and contract award in road construction has moderated due to land acquisition and approval delays, the underlying pipeline of projects remains healthy with significant sanctioned projects and improved awarding activity. With streamlined processes and focused execution, we expect this to translate into stronger domestic CE demand in the coming months as infrastructure progress accelerates”.
Export Headwinds
While domestic demand remains a concern, exports have expanded sharply. Indian manufacturers are steadily strengthening their global presence by focusing on three core pillars: improved product reliability, competitive pricing, and an aggressive expansion of dealer networks. This is a pattern familiar to the broader automotive industry; just as Indian-made passenger cars have found niches in emerging markets, heavy equipment is now following a similar trajectory of value-for-money engineering.
Technological alignment is proving to be a silent catalyst for trade. The implementation of CEV Stage V emission norms has helped in exports as the Indian products now align with global sustainability requirements, which will strengthen export competitiveness as more advanced geographies open up to Indian-made machinery. Even as exports remained a strong point for India's CE industry, amidst slowing sales in the domestic market, the international front has not been without its headwinds caused by the US tariff situation.
The United States remains the world’s largest market for construction equipment, and Indian manufacturers have struggled to fully offset the losses there by finding alternative markets in Africa and Southeast Asia. While there is emerging hope for a Bilateral Trade Agreement (BTA) with the US, the current lack of export leverage has left some idle capacity in Indian plants. There is also the lingering issue of unauthorized exports, particularly for backhoe loaders, where machines are sold domestically and then shipped abroad without the knowledge of the manufacturer or finance companies, creating significant repayment risks.
Shadow of Anti-Dumping
The Directorate General of Trade Remedies (DGTR), an arm of the Ministry of Commerce, in September last year recommended the levy of anti-dumping duties on certain categories of cranes. The case, which was lodged by domestic major Action Construction Equipment (ACE), is based on the allegations that high-capacity truck and crawler cranes are dominated by Chinese manufacturers helped by cheaper steel inputs, state support, and soft financing that left them 30–40% cheaper than Indian rivals.
These recommendations come on the back of similar earlier orders for wheel loaders and other equipment. However, industry experts remain unsatisfied with the measures by the regulatory bodies. According to them, while the government has implemented or discussed duties on wheel loaders, rock breakers, cranes, and excavators, these barriers are often easily circumvented by savvy global players thanks to the malleability of modern trade.
Rather than halting the influx of low-cost machinery, the insiders pointed out, the anti-dumping duties are merely changing the nature of trade. When a duty is imposed on a Completely Built Unit (CBU), industry jargon for a finished machine ready for the quarry, importers often cleverly bring in Semi-Knocked Down (SKD) kits.
By utilizing their existing manufacturing footprints in India to assemble these kits, foreign players "navigate" the duty structure while keeping their costs "artificially low". This tactical shift renders the protectionist measure a paper tiger. Domestic manufacturers find themselves competing not against a finished product, but against a fragmented supply chain that bypasses the intended fiscal penalty.
"I am not too hopeful that this anti-dumping is going to significantly change the complexion of the industry as long as it is not done in a very 360-degree holistic way," another top executive of an OEM noted. The question is—at what point does an assembly of a kit count as "Made in India", particularly in a market like India, where the indigenous vendor system has yet not developed to the extent desired, and localization levels still hover around 70%?
The government, before bringing any antidumping measures, also has to take into account such nuances; otherwise, it may end up stunting the demand for the machines themselves. One of the solutions could be defining stricter local-value-addition (LVA) percentages for machines to qualify as domestic products, thereby discouraging simple "screwdriver" assembly of subsidized foreign kits.
A PLI Solution?
If anti-dumping duties are the "stick" used to discourage imports, Chaturvedi of CASE Construction Equipment believes the industry is missing a "carrot" to encourage genuine localization. The industry captains argue that trade barriers alone will not migrate supply chains to India. Instead, they advocate for a Production Linked Incentive (PLI) scheme specifically tailored for construction equipment.
Such a scheme would provide the necessary kickstart to bridge the manufacturing disability caused by high initial capital costs and low economies of scale, particularly for sophisticated components that currently have low local volume but high potential. "Things like these would really help, I feel, in achieving the Make in India objective of the Government of India, rather than simply putting anti-dumping without other pieces in place."
Whether the current slump is remembered as a painful but temporary downcycle or as the moment when India ceded ground to subsidised foreign competition will depend on how quickly policy and execution realign from faster project awards. It will also depend on time-bound disbursements leading to a more holistic trade regime and a serious push on localisation, possibly via a tailored PLI.
For now, the sector is holding its nerve on the promise that infrastructure will again be the government’s preferred growth lever; but unless that promise is matched by predictable pipelines, smarter protection and targeted incentives, the clandestine loaders at Indira Dock may come to symbolise not just a loophole in the tariff code, but a missed opportunity in nationbuilding.