The Union Budget to be presented on February 1 is expected to propose an incentive scheme of over Rs 13,000 crore for the construction equipment sector, as the government looks to strengthen domestic manufacturing and reduce reliance on imports, according to officials familiar with the discussions.
The proposed scheme is likely to be part of the government’s broader effort to build domestic capacity in capital goods that are critical to infrastructure creation, at a time when public investment continues to anchor economic growth.
In the current financial year, the government has earmarked Rs 11.11 lakh crore for capital expenditure, or about 3.4% of GDP, with infrastructure accounting for a large share of the outlay.
What do officials say?
Officials said the incentive framework is being designed to address persistent capacity gaps in construction equipment manufacturing that have constrained project execution despite higher budgetary allocations.
Delays in the availability of specialised machinery have been a recurring issue across large infrastructure segments such as highways, metro rail and urban development, often because of dependence on imports.
The scheme is expected to focus on high-value equipment including tunnel boring machines, ropeway systems, backhoe loaders, crawler and tower cranes, as well as engines and transmission systems.
Tunnel boring machines are increasingly central to metro and underground infrastructure projects, while ropeways are being deployed for both urban mobility and tourism in hilly regions. Equipment such as cranes and loaders remains critical for road construction, real estate development and agricultural activity.
What would the companies need to do to avail incentives?
Officials said companies seeking to avail of incentives would be required to meet a minimum domestic value addition threshold of around 50%.
The condition is aimed at pushing manufacturers beyond assembly operations and encouraging localisation of key components such as engines, electronic systems, control units and specialised steel parts, which are currently imported in large volumes.
At present, a significant portion of construction equipment sold in the country is assembled locally using imported components, with China being a major source. The government believes this has limited the development of a robust domestic supply chain and left infrastructure projects vulnerable to external disruptions.
By linking incentives to localisation, the proposed scheme is expected to spur investment in component manufacturing, engineering capabilities and supplier ecosystems. Officials said this could help reduce lead times for equipment procurement and improve execution speed for public projects, improving the effectiveness of capital expenditure.
The move is also seen as aligned with the government’s broader push to strengthen domestic manufacturing under its industrial policy framework. Over time, higher local content could help lower import bills for heavy machinery, reduce exposure to currency volatility and improve cost competitiveness for infrastructure developers.
If implemented as planned, the scheme could support faster rollout of large projects while creating a stronger domestic base for construction equipment manufacturing.