The Scenario of Unauthorized Exports!
India is rapidly emerging as a premier global manufacturing hub for construction equipment. Over the past decade, leading manufacturers from around the world have set up production facilities in India, serving both domestic markets and international exports. Today, construction equipment made in India is highly regarded worldwide, driving global demand for both new and used machinery sourced from the country.
Infra Engineers India Pvt Ltd. (IEPL) has catered to the used construction and mining equipment industry for nearly a decade. The company focuses 99% of its operations on used machinery, while the remaining 1% involves exporting new equipment under manufacturers’ validation.
IEPL seeks to highlight the significant issue of unauthorized exports of new equipment, which is poised to have a substantial impact on manufacturers, dealers, financial institutions, auctioneers, and service providers in the used equipment industry.
Standing Out as a Key Source: India's construction equipment is renowned for its highly strategic pricing on the global stage, while consistently upholding high-quality standards. This winning combination makes India an attractive sourcing destination for international traders.
Evading Transparency: Manufacturers implement restrictions on traders to prevent the export of new equipment. However, many traders surpass these impediments by procuring equipment through third-party entities, obtaining financing, and illicitly exporting it without the awareness of manufacturers or financial institutions.
Auctioneers’ vital presence: A Substantial amount of newly exported equipment is sold through auctioneers, with many traders forging partnerships with the global auctioneer Ritchie Bros. Traders from countries such as the Netherlands, Mexico, and the UAE are acquiring substantial volumes of equipment from Indian suppliers.
Equipment at below cost: Presently, there are around 500 traders throughout India involved in the export of construction equipment, with 95% of them concentrating on new equipment. In response to fierce competition, many traders have resorted to more lenient business practices, frequently offering new equipment at prices below cost.
Risk to Financial entities: Most of the newly financed equipment exported from the country is funded by non-banking financial companies (NBFCs). However, this equipment is frequently sold and exported without settling the outstanding financing. This practice presents a considerable risk to financing institutions, as they may struggle to recover their loans if they are unable to repossess the assets in cases of payment defaults. If this trend continues, it could significantly hinder the financing of new assets for authentic customers in the future.
Good resale value is a plus: At present, Indian-manufactured construction equipment is attractively priced in the international market, and its performance is highly regarded worldwide. A robust resale value for used equipment greatly facilitates the sale of new machinery. For instance, the JCB backhoe commands a significant market share, primarily owing to the strong resale value of its used units. When the resale value of used equipment is high, manufacturers experience much greater success in selling new equipment.
Difficulty for used equipment market: Globally, there is increasing interest especially by traders in India as a source for both used and new construction equipment. IEPL is actively engaged in the used equipment business. However, through our interactions with international traders, it has become apparent that used equipment is more expensive relative to new equipment.
The illegal sale perceive of new equipment at lower prices is adversely impacting the used equipment market, making it increasingly challenging to compete.
Small Problem Today, Big Risk Tomorrow: Manufacturers are currently providing special pricing for the domestic market. However, many exporters are taking advantage of this by securing financing and selling equipment through unauthorized channels. Although this issue may appear minor at the moment, it has the potential to escalate into a major concern, ultimately hindering the growth of the entire industry.
Prompt action is essential; failing to tackle the challenges could lead financial firms and manufacturers into serious difficulties ahead. IEPL fervently wishes for all stakeholders to join forces, fostering collaboration to forge a unified strategy that effectively resolves this pressing crisis.
Avinash S.
Director, Infra Engineers India Pvt. Ltd.
