India plans $1.2B incentive scheme to boost local machinery production
What's the story
India is on the verge of approving a $1.2-billion incentive scheme to promote domestic production of high-value, technologically advanced construction and infrastructure equipment, according to Reuters. The move is part of a broader strategy to reduce the country's reliance on China for critical machinery. The scheme, which is expected to be finalized soon, aims to attract $1.8 billion in fresh investments by offering incentives over seven years.
Investment focus
Who will benefit from the scheme?
The incentive scheme targets domestic manufacturers of high-value, technologically sophisticated construction equipment such as tunnel boring machines, fire-fighting equipment, and elevators for high-rise buildings.
The plan could benefit state-run BEML, which plans to manufacture tunnel boring machines domestically. Other potential beneficiaries include Larsen and Toubro and Johnson Lifts.
The scheme also sets local value addition targets for machines that are currently fully imported.
Import dependency
India's reliance on imported tunnel boring machines
India's reliance on imported tunnel boring machines has long been a challenge, with China being one of the major suppliers.
The situation highlights India's struggle to build domestic manufacturing capacity.
However, the Indian government is making a renewed push to reduce dependence on key imports despite previous efforts falling short in boosting domestic manufacturing.
Scheme design
Details about the new incentive scheme
The new incentive scheme has been designed after assessing the requirements for making local production viable against India's existing import dependency.
A final decision on the plan is expected soon, with India's federal heavy industries ministry and finance ministry yet to comment on it.
The country's construction and infrastructure equipment market, valued at ₹1 trillion ($10.5 billion), is expected to grow as India ramps up spending on roads, metros, airports, and other infrastructure projects.
Import restrictions
Border clashes and impact on imports
After the deadly 2020 border clashes between Indian and Chinese troops, New Delhi imposed restrictions on investments and public procurement from China.
In 2024, China started restricting exports of tunnel boring machines by delaying customs clearances for shipments to India.
The imports of tunneling machinery from China fell sharply from $18 million in 2022-23 to just $3 million in 2023-24.