3,104 construction equipment units worth Rs 1,500 crore exported without authorisation in FY23
ICEMA added that the unauthorised exports of equipment have increased in the past 2–3 years, thereby increasing the likelihood of increasing non-performing assets in the Indian banking system.
The Indian Construction Equipment Manufacturers Association's (ICEMA) internal estimates show that at least 3,104 units of construction equipment worth over Rs 1,500 crore were exported without authorisation from the country during FY23. ICEMA is a lobbying body representing 95% of the total companies operating in the segment.
According to ICEMA, construction equipment such as excavators, backhoe loaders, and other construction equipment is exported by individuals to markets in Africa, the Middle East, and Europe, among others, to capitalise on the price differences that exist between the Indian and international markets.
It has been observed that some borrowers, after obtaining possession of the equipment, transfer the equipment by way of sale to another party during the duration of the charge on the equipment. The equipment is made to change hands multiple times and is finally exported out of the country by a different party, unrelated to the borrower, and exported out of India without the consent or knowledge of the lender, while the charge of the lender continues.
ICEMA added that the unauthorised exports of equipment have increased in the past 2–3 years, thereby increasing the likelihood of increasing non-performing assets (NPA) in the Indian banking system.
Even as banks and financial institutions have taken significant measures at their end to address and alleviate the export of hypothecated CE (construction equipment), such as augmenting their legal frameworks to reinforce contractual agreements and fortify borrower obligations, challenges regarding their effectiveness in curbing such unauthorised exports still persist.
An exclusive report by Autocar Professional published in November last year shed light on the concerning issue of illegal exports of construction equipment from India. This not only puts financiers at risk, as they may be unable to repossess the asset if an account becomes non-performing, but it also distorts the global export market for original equipment manufacturers (OEMs) operating in India. As such, the industry association has taken up the matter with the central government for immediate intervention to address the issue. It is important to note that OEMs sold about 1 lakh units of CE during the fiscal year 2023, representing an annual growth rate of about 25%. This highlights the scale of the problem and the need for effective measures to combat illegal exports in the industry.
Unauthorised exports escalated with the Ukraine-Russia conflict
The ongoing conflict between Russia and Ukraine that began in February 2022 has led to a significant shift in the construction equipment market in Russia. Some of the major Western OEMs dealing in the segment pulled out of the lucrative Russian market due to the instability caused by the conflict, resulting in an imbalance between supply and demand.
As a result, CE makers from China have benefited, taking over the entire Russian market, with over 90% of new CE products now bearing Chinese footprints.
Furthermore, while multinational giants with established product distribution channels can export construction equipment (CE) to markets in Africa, the Middle East, and Southeast Asia, some Indian companies that have traditionally focused on the domestic market are now looking to take advantage of the current situation to make some extra money.
The unauthorised export of construction equipment is a complex problem with no easy solutions. However, the Indian government and banks need to take action to address this issue.
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