India Plans 12–16% Incentive to Boost Construction Equipment Manufacturing

The Indian government is considering a new incentive scheme to strengthen domestic manufacturing of construction and infrastructure equipment. The proposal aims to reduce reliance on imports while supporting the country’s massive infrastructure expansion.

According to two persons acquainted with the talks, the Center is thinking of offering a 12–16% incentive on significant investments to promote local production of construction equipment including cranes, crawlers, and tunnel boring machines.

Government Plans Incentives For Construction Equipment Manufacturing

In her FY27 budget statement on February 1, Finance Minister Nirmala Sitharaman unveiled a plan to improve construction and infrastructure equipment (CIE), which includes this idea. The Ministry of Heavy Industries will implement the initiative using ₹200 crore from the budget.

According to the individuals mentioned above, who asked to remain anonymous, businesses that invest more than ₹500 crore in the production of construction equipment may be eligible for the proposed incentives under the existing plan.

This trend occurs at a time when India’s ₹12.2 trillion capex bonanza—three times FY20 levels—boosts demand for mining equipment, highways, and railroads, yet ongoing imports of essential components impede self-reliance.

Scheme Timeline And Structure

According to one of the persons, the scheme is being created with a ₹14,300 crore corpus spread over seven years, including two years for investments and five years for incentive payments. According to the individual, the government is thinking of setting incentives at 16% for the first three years, 14% for the fourth, and 12% for the fifth.

According to the second source, manufacturers of construction equipment components who invest more than ₹200 crore might also be eligible for the incentives. The Ministry of Heavy Industries had started consulting with the construction machinery industry for an incentive-based program, as Mint had previously reported in November 2025.

Localization And Import Substitution Goals

According to the second person, the planned plan will prioritize domestic production of high-quality spare parts and import substitution. Depending on how dependent the product is now on imports, it will contain localization standards of 30–50% domestic value addition, according to the individual.

Localization Requirements

A manufacturer would need to localize at least 30% of the value addition if they wanted to produce an entirely imported product in India.

Similarly, the manufacturer must satisfy the 50% domestic value-addition requirement if the product is primarily imported but some components are produced locally.

“This is the current consideration,” stated the second individual mentioned before. Construction equipment manufacturers JCB India, Larsen & Toubro Construction and Mining Machinery, Escorts Kubota, and Action Construction Equipment (ACE) did not respond to emails sent to the heavy industries ministry on March 10 and early on March 11.

Import Dependence In Equipment Sector

According to data from the commerce ministry, India imported over $500 million worth of heavy construction equipment, such as excavators and bulldozers, in FY25, which was somewhat less than $538 million in FY24.

However, experts claim that the reliance on imports is more concentrated in essential parts than in completed building equipment.

Expert Views On Import Reliance

According to Poonam Upadhyay, director of Crisil Ratings, India is mostly self-sufficient when it comes to completed construction equipment because both domestic and foreign firms create machinery locally.

However, she said that the nation continues to import sophisticated systems like hydraulic assembly and specialized parts needed in big machinery.

Major Global Suppliers

According to Upadhyay, “China, Japan, South Korea, and portions of Europe, notably Germany and Italy, which dominate in advanced heavy-engineering manufacturing, are often the sources of large lifting equipment like cranes and tunneling or boring machines used in complicated infrastructure projects.”

According to ratings agency Icra, the availability of essential raw materials, the lack of domestic demand to make local production economically viable, and the technological divide between tier-II/III suppliers and developed market vendors are the main reasons why India must import construction equipment.

Infrastructure Demand Driving Growth

The government’s capital expenditures mostly support industries that employ a lot of heavy construction equipment, like roads, railroads, shipping, and defense.

According to a Crisil research from November 2025, roads account for 40% of India’s demand for construction equipment.

Sector Demand Distribution

Mining coming in second at 25%, real estate at 15%, and industries including railroads, water supply, and power coming in third.

According to market research firm Mordor Intelligence, the value of India’s construction equipment industry was $9.24 billion in January 2026 and might increase to $13.61 billion by 2031.

Industry Growth Performance

With sales of 140,191 units in FY25, the industry rose 3% year over year, according to the Indian Construction Equipment Manufacturers’ Association.

India’s position as the third-largest market for construction equipment in the world was strengthened by the industry’s overall performance.

Export Growth Strengthens Industry

This was fueled by a strong 10% increase in exports, even while domestic market growth remained muted at 2.7%.

Frequently Asked Questions

1) What is the government’s new initiative?

Under the direction of Finance Minister Nirmala Sitharaman, the Indian government is developing an incentive program to encourage homegrown construction equipment production and lessen reliance on imports.

2) What rewards will businesses get?

Companies that qualify may receive incentives ranging from 12% to 16%, with 16% going toward the first three years, 14% going toward the fourth, and 12% going toward the fifth.

3) What financial outlay is necessary?

Manufacturers may be eligible if they invest more than ₹500 crore in equipment manufacture and ₹200 crore in component manufacturing.

4) Why does India continue to import building supplies?

Due to limited domestic production and technological limitations, India primarily imports large equipment and complex components.

5) What are the specifications for localization?

Depending on how dependent a product is now on imports, businesses must add between 30 and 50 percent of value domestically.

Conclusion

As infrastructure demand rises, the program seeks to increase domestic production, decrease imports, and fortify India’s construction equipment sector.

Disclaimer: This article is for informational purposes only and is based on publicly available industry reports and government discussions.