FCC

Unveiling the Shadows

2024-09-25

India is becoming a valuable source for the global market, showcasing cost-effectiveness, quality, and timely delivery. These strengths enhance its competitiveness and position it as a preferred partner in the construction equipment sector, leading international traders to recognise the benefits of sourcing from India and strengthening its global supply chain role.

Infra Engineers India (IEPL) has served in the used construction and mining equipment industry for close to a decade. With 99 per cent of its operations centred on used machinery, the company also exports new equipment, making up the remaining 1 per cent, with the authorisation from manufacturers.

Amid this progress, a silent challenge is emerging, and IEPL attempts to bring light to the issue of unauthorised exports of new equipment. This troubling trend threatens to significantly impact manufacturers, dealers, financial institutions, auctioneers, and service providers in the used equipment industry.

Circumventing regulations: Manufacturers impose stringent restrictions on traders to prevent the export of new equipment. Despite this, many traders overcome these barriers by acquiring equipment through third-party agents, securing financing, and illicitly exporting it without the knowledge of manufacturers or financial institutions.

Below-cost equipment offers: Across India, around 500 traders are actively engaged in exporting construction equipment, with nearly 95 per cent focusing on new machinery. Faced with growing competition, many traders have turned to relaxed business practices, often selling new equipment at prices below cost to retain their competitive edge.

Threats to financial institutions: Most newly financed equipment exported from the country is backed by non-banking financial companies (NBFCs). However, this equipment is often sold without settling financing obligations, risking loan recovery for financial institutions and potentially hindering future financing for legitimate customers.

Financial roadblocks: Selling construction equipment without financing poses considerable challenges. Exporting newly financed equipment significantly jeopardises repayment prospects, prompting financiers to implement stricter funding criteria for new clients. This shift has the potential to negatively impact the entire industry. If stakeholders fail to address the issue of illegal exports of financed equipment, it could undermine the industry's stability and growth.

The struggles of the 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 deeply involved in the used equipment sector. However, our discussions with international traders reveal that used equipment tends to be priced higher compared to new equipment. Additionally, the illegal sale of new equipment at lower prices is negatively affecting the used equipment market, creating significant challenges for competition.

Auctioneers’ scenario: A significant volume of newly exported equipment is being sold through auction platforms, with many traders establishing strategic partnerships with the renowned global auctioneer, Ritchie Bros. Traders from countries like the Netherlands, Mexico, and the UAE are sourcing large quantities of equipment from Indian suppliers.

Small setbacks, big threats ahead: Manufacturers are presently offering special pricing for the domestic market. However, many exporters are exploiting this situation by obtaining financing and selling equipment through unauthorised channels. While this issue may seem minor at first glance, it has the potential to escalate into a significant problem, ultimately impeding the growth of the entire industry.

To wrap up, quick action is key; ignoring the current challenges might lead financial firms and manufacturers into tricky situations down the road. IEPL hopes all stakeholders can come together and collaborate to create a coordinated approach that successfully tackles this urgent issue.

Communication by the management of the company