The equipment industry is at the value creation root of the whole economy

Jehangir Ardeshir, President and Managing Director, Terex India Terex entered India through a JV in 1995. The company has since gone on to leave an indelible mark on the Indian construction equipment industry. Having expanded its horizons by setting up a greenfield manufacturing facility at Hosur in Tamil Nadu to manufacture material processing equipment (essentially crushers and screens), today Terex also has a facility in Pune to produce various factory cranes and hoists. These facilities focus on an equipment range mainly for local distribution, but increasingly also for export to other Asian, African and Middle Eastern countries. Jehangir Ardeshir, President and Managing Director, Terex India, elaborates upon the current scenario and its impact on construction equipment companies in conversation with SHRIYAL SETHMUDAHAVAN. How do you view the issue of project delays? The power sector has been severely hit. Some of the biggest names in the country have invested thousands of crores to put up power plants and get coal linkages from abroad as these are not adequate in India. Coal India is running well below capacity and cannot really meet demand. Linkages from outside the country were originally reasonably priced, but later were highly taxed in their own countries and, hence, became prohibitively expensive. Companies have invested Rs 8,000 crore to Rs 10,000 crore in power projects, which are now stuck or delayed. It is a shame on our economy and the way things are being done that despite having plentiful raw material in India, we cannot feed our power plants, though there is a crying need for power. How does this directly affect the equipment industry? To develop big power projects, one requires heavy duty and high capacity cranes as well as related equipment like man lifts, which we in Terex call aerial work platforms (AWP). Hence, we have sold few big cranes and AWPs, which is a good chunky business for us. However, our customers are not going to buy any equipment unless they need to erect something, and this isn't happening frequently these days; overall, there is a slowdown. Moreover, the market first uses existing equipment, (as the capacity is idling) before buying more. So, if there is a slowdown, if the economy was geared for 8 per cent and comes down to 5 per cent, with manufacturing coming down to 1 per cent, and thereby if our industry sees a shrinkage (which is currently happening), there is a lot of idle capacity out there limiting the ability for new sales. Has this affected Terex's performance in any way? We have had a flat year after experiencing tremendous growth for the past three years. We saw the slowdown coming, though we did not realise how intense it would be. We have not over-produced and stuffed the channel; we have handled our businesses sensibly and fortunately have not over-invested in capacity additions like others. We have, however, invested in improving our service offerings thereby engaging with them and creating a value added partnership. We have also invested in localisation to remain more competitive in many of our businesses. With the introduction of bodies like the Cabinet Committee on Investment, do you see a change occurring in the present situation? The empowered group of ministers, who were to decide on the land acquisition bill, were reasonably quick in actioning this. But, the government did not accept it in its entirety and has yet not brought it to a conclusion. There are four bottlenecks: land acquisition, environment and forest clearances, financing and taxation issues, of which Goods and Service Tax (GST) is a key initiative yet to see the light of day. What is required is the ability to move products, goods and services around the country smoothly and easily, and without logistical interferences. If these four bottlenecks are addressed, we can start this economic engine again. In the case of land acquisition and environment clearances, there are two sides to the issue. If ministries within the government are at loggerheads and the government cannot decide the way forward, it leads to the industry waiting and watching, while projects are not getting cleared, and the economy and the country are losing out. The flipside is that we have arrived at this situation because the environment and forest ministry are appropriately resisting industries such as illegal mining, which have tremendously abused the environment. So, if we, as public or private sectors and the society at large, operate responsibly, this can be prevented. And talking about land acquisition and finance... If it is true that people who give their agricultural land for conversion to the industry are not paid the fair value, they are justified in taking the matter to the courts. This is mainly why land acquisition has become an issue. And when courts do not resolve issues quickly, it is taken to the streets. However, there is another facet to this as well. The hinterland has seen urban centres grow and become rich rapidly and those who sold land want their share in that; they sold at what they thought was a reasonable price but are seeing others getting rich on the same land. This can't be managed by the government or anybody else as this is a marketplace phenomenon. However, the result is that projects are being held back and are not being executed. The government also hesitates from dealing with this subject, which leaves the country in a gridlock situation. As for finance, there is plenty of cash in the economy, which is mostly in fixed deposits and gold. And it is not coming in as investment because there is no confidence that the money invested will earn a reasonable return. People want to see value creation. The present situation involves continuous lagging behaviour and delay. Low performers or over aggressive bidders for projects who have taken huge amounts from banks are now unable to pay them back and are asking the banks to restructure their loans. Such loops are created because there is a fundamental problem in the economy and it is not being governed in the right way. What are the key challenges faced by the construction equipment industry? The equipment industry is at a policy or governance level under the Ministry of Heavy Industries and Capital Goods. There are 16 to 18 industry associations including ours (ICEMA), as a result of which, there is really no voice for our industry. There has to be a way to improve this as this industry is at the value creation root of the whole economy. Taxes and duties should be reduced to make it more lucrative for people to invest in equipment, which builds infrastructure and in turn will result in value creation. GST, that we spoke of earlier, will be a welcome step not only for the construction equipment industry but for every industry in the country. Another aspect that requires attention is skill development. In terms of skilled labour, have you undertaken any initiatives? We are a part of the Indian Construction Equipment Manufacturers Association (ICEMA) and are working on setting up a Sector Skills Council with NSDC for operators and maintenance people for the equipment manufactured by our industry. The initiative will start with the most popular equipment, backhoe loaders and excavators, and will then be extended to other product lines. The council will create content and establish accreditation systems to support trained operators to enter the job market with confidence. It will encourage our customers to use trained operators because they will be more productive on the machines, will consume less fuel, and maintain the machine better. Interestingly, the government, through NSDC, is prepared to fund this until it becomes self-sustaining, which is a very good initiative. Safety is another key subject... We have dedicated safety training because we believe that if we have people working around us and people around whom our machines work, both machines and people have to be completely safe. Safety pervades every aspect of what we do, from the designs of our machines to the way they are manufactured, to commissioning them and training users to operate them safely. To give your feedback on this interview, write in at feedback@ASAPPmedia.com