India set to approve $1.2 billion incentive plan to make building equipment, sources say
India is set to approve an incentive scheme worth about $1.2 billion (reported around Rs 13,000 crore) to boost domestic manufacturing of high-value construction and infrastructure equipment.
Targeted equipment includes tunnel boring machines (TBMs), firefighting systems, and elevators used in high-rise buildings, along with other heavy construction machinery.
The scheme is structured as a seven-year programme and is expected to attract about $1.8 billion in fresh investment.
The initiative aims to reduce import dependence, particularly on China, which is a key supplier of tunnelling and boring equipment used in India's metro rail and highway projects.
Companies expected to benefit include state-owned BEML (which plans local TBM manufacturing), along with private manufacturers such as Larsen & Toubro and Johnson Lifts.
India's construction and infrastructure equipment market is valued at roughly $10.5 billion (about Rs 1 trillion) and is expected to expand as infrastructure spending on roads, metros, and airports accelerates.
Production Linked Incentive (PLI) Scheme Framework
The PLI scheme model, introduced in 2020 under the Atmanirbhar Bharat and Make in India initiatives, offers financial incentives to manufacturers based on incremental sales/production of goods manufactured in India, rather than upfront capital subsidies — intended to build scale, reduce import dependence, and integrate India into global supply chains.
Key Details
- PLI schemes were first approved for 14 key sectors — including electronics, pharmaceuticals, automobiles and auto components, telecom, textiles, and specialty steel — with a combined outlay of roughly Rs 1.97 lakh crore (~$26 billion).
- Incentives are typically disbursed as a percentage of incremental sales over a base year, for a defined period (usually five years), conditional on meeting investment and production thresholds.
- Nodal ministries vary by sector; heavy engineering/machinery schemes fall under the Ministry of Heavy Industries, which administers PLI schemes such as those for automobiles/auto components and advanced chemistry cell (ACC) batteries.
- As of recent reporting, cumulative PLI-linked investment stood around Rs 1.6 lakh crore, with production/sales of about Rs 14 lakh crore and over 11 lakh jobs created across sectors.
The proposed construction-equipment incentive scheme follows the same PLI-style design logic — output-linked incentives over a fixed multi-year window (here, seven years) rather than blanket import tariffs, aimed at building a globally competitive domestic base for currently import-heavy machinery like TBMs.
Import Substitution in Capital Goods — Strategic Rationale
Capital goods (machinery used to produce other goods/services) form one of India's persistent trade-deficit categories, with heavy engineering equipment such as TBMs, mining machinery, and specialised construction equipment historically import-dependent, including from China.
Key Details
- India remains a large importer of tunnel boring machines used for metro rail, highway, and hydropower tunnelling projects, with China among the principal source countries.
- The National Infrastructure Pipeline (NIP) and schemes such as Gati Shakti (National Master Plan for Multi-Modal Connectivity, launched 2021) have driven a surge in demand for tunnelling and heavy construction equipment as India expands its metro, highway, and rail tunnel network.
- Reducing import dependence in equipment tied to critical/strategic infrastructure construction is often framed in policy discussions as both an economic (import substitution, "Make in India") and strategic-security consideration, given the source-country concentration.
The scheme's explicit aim to cut import dependence on TBMs and similar equipment reflects the broader capital-goods import-substitution push that has driven several PLI-style schemes since 2020, now extended to the construction-equipment value chain feeding India's infrastructure build-out.
Ease of Doing Business and Domestic Value Addition Targets
Government incentive schemes for capital-intensive manufacturing typically specify a Domestic Value Addition (DVA) threshold that manufacturers must meet to remain eligible for incentives, ensuring the scheme builds genuine local manufacturing capability rather than mere assembly.
Key Details
- Reported plans for the construction-equipment scheme target domestic value addition of around 50% to qualify for incentives.
- DVA requirements are a recurring design feature across PLI-style schemes (e.g., mobile manufacturing, ACC battery storage schemes) to prevent "screwdriver assembly" units from claiming incentives meant for genuine manufacturing.
- The scheme is reported to run through the 2025-26 to 2029-30 period, aligning incentive disbursement with India's medium-term infrastructure capital expenditure cycle under successive Union Budgets.
A DVA threshold, if confirmed at approval, would determine whether the $1.2 billion outlay produces genuine domestic manufacturing capacity for TBMs and similar equipment, or incentivises only partial local assembly — a distinction UPSC often probes when comparing PLI scheme design across sectors.
- Proposed incentive outlay: about $1.2 billion (reported around Rs 13,000 crore).
- Expected fresh investment attracted: about $1.8 billion.
- Scheme duration: seven years (reported as spanning 2025-26 to 2029-30).
- India's construction and infrastructure equipment market size: approximately $10.5 billion (~Rs 1 trillion).
- Equipment covered: tunnel boring machines, firefighting systems, elevators for high-rise buildings, and other heavy construction machinery.
- Companies named as potential beneficiaries: BEML, Larsen & Toubro, Johnson Lifts.
- Reported domestic value addition target: around 50%.
- PLI scheme (2020) comparison baseline: 14 sectors, ~Rs 1.97 lakh crore outlay.