Equipment financing in India needs reform

Equipment financing in India needs reform
The growth in equipment financing industry over the last couple of quarters remained a worry; however, overall equipment sales have grew marginally. Sunil Gupta writes about the reforms to boost the equipment financing in India
Sunil Gupta, National Sales Head – CE, SME and Auto Lease,Magma Fincorp Ltd.
Infrastructure sector in India has experienced lots of up and down in recent time. Challenges like high interests as well as government’s inability to push the reforms, land acquisition, and environmental clearances have impacted almost every sector. While the industry has been facing the heat, the high interest rates have done no favour. The cash flows in the hands of clients remained a worry. These factors have adversely impacted the growth in the equipment financing industry over the last couple of quarters. The infra companies are finding it very difficult to raise fresh capital and debt for the projects. There is no immediate positive development in sight.
Despite all the challenges, the overall equipment sales have grew marginally in FY12. The demand was noticed mainly in rural and semi-urban areas primarily from irrigation, small road projects and various government schemes like PMGYS. For the first quarter of FY13, there was marginal growth seen in loaders and excavators. However, the same started declining post July 12.
Based on the current trends and opinion of the industry leaders, the Indian construction equipment market is expected to remain flat during current year. The growth, if any, would depend on the policy changes and corrective measures which need to be accorded top priority by the government. The land acquisition issues and environmental issues coupled with high interest cost have put a stop on various large infra projects.
The government showed some resolve to bring fresh lease of life to the sector in bits and pieces. The slew of reforms — including fuel price hike, FDI in retail and disinvestment — have been welcomed by the industry captains. The policy makers too have shown positive intent after months of flip flop. The sentiments have started turning positive. Foreign investors are slowly coming back. The FDI in retail will lead to huge investment in development of backend infrastructure like warehouses.
There is an added push in clearance of key infra projects. The Ministry of Forest and Environment (MoEF) has recently cleared about 80 files relating to road projects out of 347 road projects which are stuck up. The highways ministry has sought some relaxation in issuance of green clearances for NH projects to hasten construction work. At present, environment clearance comes only after forest clearances which are obtained for the entire stretch.
The government is now working on the Land Acquisition Bill and will be under pressure to take measures to put the infra on road to recovery.
While the government is expected to roll out more reforms soon, the key issue is implementation on the ground. If policy issues are addressed and initiatives are implemented, it will give a boost to the segment and equipment financing in India.

8