Wednesday, October 20, 2021

Industry Watch

Construction equipment rental industry is progressing fast


Satin Sachdeva, Founder & Secretary General, Construction Equipment Rental Association (CERA) gives an overview on the current status of the CE rental industry and the role played by CERA.



The equipment rental industry in India is progressing fast. It has grown to over 20 percent in last four years. It was around 7-8 percent in 2017 at the time of inception of Construction Equipment Rental Association (CERA).


CERA’s objective is to transform the rental industry into an organized sector and promote rental concept. Our goals have proved to be a game changer. We have focussed on two things, viz., standardization and building relationships with all stakeholders.


Recently, the Global Rental Alliance (GRA) acknowledged the significant role played by CERA and inducted CERA as its new member. GRA is a global networking organisation for equipment rental associations, convened for the first time under the stewardship of the European Rental Association (ERA) to address the Alliance’s future priorities and the expansion of the membership to make it more inclusive of the global equipment rental industry. The other representatives are Canadian Rental Association, Hire Association Europe, the Brazilian Rental Association, the Hire and Rental Industry Association Australia, and the Japanese Construction and Rental Association.


In its meeting, GRA discussed the various issues of the rental industry, including promoting the industry, attracting and retaining talent, sustainability, digitalisation, global market data, and the unprecedented challenges presented by the Covid-19 pandemic. Our association with GRA will boost India’s equipment rental industry and help to promote the rental concept strongly. We are hopeful that we all together will make the equipment rental industry strong and sustainable.


CERA is now geared up to participate in more discussions in GRA’s next meeting at Amsterdam.


Current scenario in India is, the second wave of COVID has impacted India’s economy further. Consequently, the rental industry has also suffered. According to the projections of S&P Global Ratings, the second wave of Covid infections may derail a strong recovery of the Indian economy. In fact, S&P has projected a lower than previously anticipated GDP growth rate in different scenarios. It has also said, the second wave may also challenge an otherwise strong recovery for Indian infrastructure and can hit economic growth and cash flows into the infrastructure sector.


Situation has not been encouraging for rental industry. It has faced unprecedented challenges in 2020 and now in 2021 as COVID-19’s impact brought construction projects to either standstill or a very slow activity. The payment receipts from the market have come to halt as the infrastructure projects are also facing the problem of funds. Consequently, there is a pressure on rental rates also. India’s equipment rental industry is actually seeing the combined effect of pandemic and the oversupply of construction equipments in the market, the latter has been ongoing for last two or three years and is an area of concern. Combined effect of pandemic and slow economy has put pressure on construction equipment rental industry.


We have urged the rental companies to focus on a disciplined fleet management for better rental rates through the downturn, do the fleet right-sizing to adjust to current demand levels and explore new rental models to suit the clients. In Europe and other countries, rental companies pruned their fleets to conserve cash and adjust to the lower demand environment.


Second concern is GST. Paying GST and other dues to government are important but GST needs reform as far as rental industry is concerned. Government should support the industry by levying GST on reverse charge basis, making the service receiver liable to pay GST, or should make GST a liability on the service provider after the company has received payments.


Third concern is, the industry is not only facing an acute shortage of skilled manpower but the labour cost has also gone up by around 25 percent. Logistics cost has also increased. Therefore, the overall operating cost of a rental company has significantly increased.


Artificial intelligence, telematics, paperless pre and post rental equipment inspections and other new technology are set to change the rental industry rapidly. Telematics will play a major role. GPS technology will become mandatory on all equipment and OEMs will have to sell all their machines with GPS as a standard attachment.


It will pave way for skilled and certified operators because the new technology machines will not be easy to operate by an untrained and non-technical operator. The skilled operators will keep machine and men safe.


CERA has already apprised the government through a letter to Minister Nitin Gadkari and Finance Minister Nirmala Sitharaman, about industry’s worsening situation due to pandemic and about the payments that have inordinately delayed or stuck.


The government should take a serious approach to address the concerns of the equipment rental industry as it is the backbone of India’s infra development, which is also the goal of the Modi government.


Government should urge all the construction companies and government departments to clear all the pending dues of the rental companies and also give a tax holiday for 2021-22.


India’s construction equipment market is projected to cross $4.7 billion by 2025 on account of anticipated growth in the construction industry, increasing foreign investments, and rising number of Infra projects across the country. Some of the largest infra projects include the Smart City Mission, AMRUT (Atal Mission for Rejuvenation of Urban Transformation), Metro Rail in urban areas, Bharatmala, and Sagarmala, among others. Only 24% of the highways in India are of 4 lanes, so there is a huge opportunity in the roads sector. India is expected to be the world’s third largest construction market by 2022. But for this, India will need investments to the tune of `50 trillion in the infrastructure sector within the next two years.


CERA is promoting the concept of rentals globally, working very closely with OEMs, rental companies, financiers and infrastructure companies, aiming at 40-50 per cent penetration in the next two years.


The rental industry must prepare for the next level of growth. The rental industry should be futuristic in approach and keep pace with global trends and standards.

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