Policy Update
Tanisha Hooda
Background
India’s growing investment in infrastructure has increased the need for modern and technologically advanced construction equipment. Machinery used in buildings, metro projects, roads and other large infrastructure works forms an important part of the country’s capital goods sector. As infrastructure development expands, strengthening India’s ability to manufacture such equipment domestically has become increasingly important. The Union Budget 2026–27 proposed public capital expenditure of ₹12.2 lakh crore, reflecting the government’s continued focus on infrastructure-led growth.
Against this backdrop, the Union Budget 2026–27 proposed the Scheme for Enhancement of Construction and Infrastructure Equipment (CIE). The proposed scheme aims to strengthen domestic manufacturing of high-value and technologically advanced construction and infrastructure equipment. It covers a diverse range of machinery, from lifts used in multi-storey buildings and firefighting equipment to sophisticated tunnel-boring machines required for metro projects and roads in high-altitude regions.
The scheme forms part of the government’s broader effort to build stronger domestic capabilities in the capital goods sector. This sector supplies machinery and equipment required across manufacturing and infrastructure activities and has wider effects on industrial growth and employment. The need for stronger domestic capacity is also reflected in India’s continuing dependence on technologically advanced machinery from abroad.
Overall, the CIE initiative seeks to support India’s expanding infrastructure requirements while developing domestic capacity to manufacture sophisticated equipment at home. It complements the broader policy direction of improving manufacturing capabilities, technological capacity and the competitiveness of India’s capital goods sector.
Functioning
1. Building Domestic Manufacturing Capacity: The proposed scheme also seeks to strengthen supply-chain localisation by encouraging greater domestic production of equipment and its key components. Reducing reliance on imported machinery and critical equipment components could improve supply-chain resilience, support the development of domestic component manufacturers, and strengthen linkages across the construction and infrastructure equipment ecosystem. This localisation could also help build domestic capabilities in higher-value segments of the equipment manufacturing chain.
2. Technology Development and Industry Support: The initiative can leverage the broader capital goods ecosystem to support domestic manufacturers through industry–academia collaboration, Centres of Excellence, Common Engineering Facility Centres, testing and certification facilities, and Hi-Tech Tool Rooms. These existing institutional mechanisms can provide manufacturers, including smaller firms, with access to specialised technologies, advanced tooling, testing facilities, and technical support required for advanced equipment manufacturing. Such support can help firms improve their technological capabilities and strengthen their ability to develop and manufacture high-value equipment domestically.
3. Enhancing Technological Competitiveness: The initiative also seeks to improve the competitiveness of domestically manufactured construction and infrastructure equipment. Its effectiveness will depend on whether Indian manufacturers can develop advanced technologies, improve product quality and meet internationally competitive standards. Continued investment in R&D and precision engineering will therefore be important for building sustainable domestic manufacturing capabilities.
4. Skill Development and Quality Standards: Another important area is the availability of skilled workers and the maintenance of reliable quality standards. The National Capital Goods Policy, 2016 highlights the need to increase skill availability and ensure mandatory standards across the capital goods sector. For the Construction and Infrastructure Equipment initiative, this is particularly relevant because advanced equipment requires specialised knowledge for its manufacturing, operation and maintenance. A stronger skilled workforce, along with consistent quality and safety standards, can therefore support the production of reliable construction equipment that meets the requirements of large infrastructure projects.
5. Strengthening MSMEs and the Manufacturing Supply Chain: The initiative can also contribute to a broader domestic manufacturing ecosystem by strengthening the role of Micro, Small and Medium Enterprises (MSMEs). MSMEs play an important role in manufacturing as suppliers of components, parts, sub-assemblies, maintenance services and other specialised inputs to larger manufacturers. The National Capital Goods Policy specifically identifies the growth and capacity building of MSMEs as an important objective of the capital goods sector.
For construction and infrastructure equipment, the CIE initiative can further strengthen this ecosystem by creating greater opportunities for MSMEs to participate in domestic equipment supply chains and develop capabilities in producing higher-value components and specialised inputs. Strengthening their technological and production capacity can therefore deepen supply-chain linkages, reduce dependence on imported components and allow the benefits of manufacturing expansion to extend beyond large equipment producers.
Performance
1. Declining Import Dependence in the Capital Goods Sector: India’s capital goods sector has shown some improvement in reducing its dependence on imported machinery. The overall import-to-production ratio declined from 53.9% in 2022–23 to around 41.1% in 2025–26 (Department-Related Parliamentary Standing Committee on Industry, 2026). This represents a decline of 12.8 percentage points from the 2022–23 level. However, the Parliamentary Standing Committee notes that import dependence remains particularly high in segments such as machine tools, textile machinery and food-processing machinery. These figures reflect the performance of the broader capital goods sector and should not be presented as an outcome of the newly announced CIE Scheme, which was only proposed in Union Budget 2026–27.
Figure 1: Import-to-Production Ratio in India’s Capital Goods Sector (%)
Source: Parliamentary Standing Committee on Industry, 2026.
The import-to-production ratio declined from 53.9% in 2022–23 to 41.1% in 2025–26, indicating a gradual reduction in the capital goods sector’s dependence on imports. However, the ratio remains relatively high, highlighting the continued need to strengthen domestic manufacturing capacity. This trend reflects broader developments in the capital goods sector and predates the newly announced CIE Scheme; therefore, these figures should be treated as baseline sectoral context rather than as evidence of the scheme’s performance.
2. Large Domestic Market and Scope for Import Substitution: The CIE Scheme is being introduced in a sizable domestic market valued at approximately ₹1.03 lakh crore, according to the Department-Related Parliamentary Standing Committee on Industry’s 332nd Report on the Demands for Grants (2026–27), presented in March 2026.
However, the sector continues to face significant import dependence, particularly for technologically advanced equipment. This creates considerable scope for the scheme to strengthen domestic manufacturing and gradually substitute imports with equipment produced in India. Since the scheme is newly announced, the current market size and import dependence provide an important baseline for assessing its performance in the coming years.
Table 1: Key Market Indicators of the CIE Scheme
| Indicator | Value |
| Domestic CIE Market Size | ₹1.03 lakh crore |
| Import Dependence | Significant |
Source: Parliamentary Standing Committee on Industry, 2026.
3. Financial Framework and Performance Monitoring: The CIE Scheme has a total financial outlay of ₹14,300 crore over seven years, with an initial provision of ₹200 crore for 2026–27. As the scheme has only recently been announced, these figures represent its financial framework rather than actual expenditure or achieved outcomes. The Parliamentary Standing Committee has recommended annual monitoring of investment realised, domestic value addition, import substitution and export performance to assess the scheme’s progress in the coming years.
Figure 2: Financial Outlay of the CIE Scheme
Source: Parliamentary Standing Committee on Industry, 2026.
The ₹200 crore initial budgetary provision for 2026–27 represents the starting allocation within the scheme’s larger proposed financial framework of ₹14,300 crore over seven years.
4. Growth in Construction Equipment Sales: The Indian construction equipment industry recorded moderate growth in FY25, with total sales increasing by 3.3% from 1,35,650 units in FY24 to 1,40,191 units in FY25. Domestic sales also increased from 1,23,660 units to 1,26,961 units, representing growth of 2.7%. However, domestic demand remained relatively subdued during the year, indicating that overall industry growth was modest despite the expansion in equipment sales.
Figure 3: Construction Equipment Sales Performance, FY24–FY25 
Source: ICEMA Annual Sales Report, 2025.
Construction equipment sales showed moderate growth in FY25, with total sales rising by 3.3% and domestic sales by 2.7% compared to FY24. Exports recorded the strongest growth at 10%, indicating that export demand played an important role in supporting overall industry growth during FY25.
5. Segment-wise Performance of Construction Equipment: Performance across construction equipment categories varied considerably in FY25. Earthmoving equipment remained the dominant segment, accounting for 71% of the market with sales of 99,159 units and growth of 6%. Within this segment, Backhoe Loaders recorded 53,133 units, while Crawler Excavators accounted for 35,816 units. Material Handling Equipment was the second-largest segment with 17,050 units, followed by Concrete Equipment with 14,473 units. Road Construction and Material Processing Equipment recorded 7,002 and 2,507 units, respectively. This indicates that industry performance remained strongly concentrated in earthmoving equipment.
Figure 4: Segment-wise Construction Equipment Sales in FY25
Source: ICEMA Annual Sales Report, 2025.
The data shows a strong concentration of FY25 equipment sales in the earthmoving segment, which remained significantly ahead of all other categories.
Impact
1. Strengthening Domestic Manufacturing and Localisation: The CIE initiative has the potential to strengthen India’s domestic manufacturing base by encouraging greater production and localisation of construction and infrastructure equipment. India’s Mining and Construction Equipment (MCE) market exceeded USD 17 billion in 2025, reflecting substantial domestic demand. With infrastructure-related capital expenditure expected to increase from around ₹5.5 lakh crore in 2025 to ₹9–10 lakh crore by 2030, domestic manufacturers could benefit from a growing market for advanced machinery. Greater localisation can strengthen domestic component manufacturing and contribute to a more resilient supply chain.
2. Supporting Infrastructure Expansion and Mechanisation: Construction equipment is a critical input for the development of roads, railways, ports, airports, mines, factories and power infrastructure. The CIE initiative can therefore have an impact beyond the equipment manufacturing industry by supporting faster mechanisation of infrastructure and mining activities. India’s mechanisation intensity is currently estimated at roughly half the global level, indicating considerable scope for greater use of modern equipment. Increased availability of domestically manufactured machinery could support this transition as infrastructure investment expands.
3. Expanding India’s Export Potential: India has already moved from being largely import-led to becoming a net exporter of mining and construction equipment, with exports reaching around USD 4.9 billion in 2025 (BCG–CII, 2026). However, India currently supplies less than 4% of the roughly USD 150 billion global import demand for such equipment. The report identifies Southeast Asia, Africa, the Gulf and South America as key potential export markets, where infrastructure and mining demand is expanding. These developments reflect the existing performance and export potential of India’s mining and construction equipment sector and predate the newly announced CIE Scheme. The CIE initiative could potentially build on this existing base by strengthening domestic manufacturing capabilities and supporting greater export competitiveness.
4. Promoting Technology, R&D and Advanced Equipment: The impact of the CIE initiative will also depend on whether domestic manufacturers can adapt to technological changes reshaping the global equipment industry. The CII–BCG report identifies major shifts including cleaner powertrains, connected and software-defined fleets, autonomous vehicles and greater mechanisation of mining operations. Encouraging R&D and advanced equipment manufacturing could help Indian firms move beyond conventional machinery towards higher-value and technologically sophisticated products.
5. Building Skills and a Competitive Manufacturing Ecosystem: Expansion of domestic equipment manufacturing can create wider opportunities across the manufacturing ecosystem, including for OEMs (Original Equipment Manufacturers) , component suppliers and skilled workers. The CII–BCG framework highlights skilling and supplier ecosystem development as important requirements for the sector’s long-term growth. The CIE initiative can therefore support not only equipment production but also the development of specialised skills and supplier capabilities needed for a globally competitive industry.
Emerging Issues
1. Limited R&D and Slow Technology Adoption: India’s construction equipment sector still faces challenges in research and development (R&D) and the adoption of advanced technologies. Technologies such as IoT, automation and digital systems are increasingly being used in global equipment manufacturing, but their adoption in India remains relatively limited. This can affect the ability of domestic manufacturers to develop technologically advanced and globally competitive equipment. Greater investment in R&D, stronger industry–academia collaboration and targeted support for digital and automated technologies could help address this gap.
2. High Capital Costs and Financing Constraints: Manufacturing construction and infrastructure equipment requires significant investment in production facilities, advanced machinery, testing and technology upgradation. These high costs can be particularly challenging for smaller manufacturers looking to expand or adopt newer technologies. Improved access to affordable finance, targeted incentives for technology upgradation and greater use of shared testing and production facilities could help reduce these financial constraints.
3. Shortage of Skilled and Technology-Ready Workforce: The growing use of advanced equipment is increasing the demand for workers who can manufacture, operate and maintain sophisticated machinery. However, skill shortages remain a persistent challenge and could become more significant as automation and digital technologies expand. Industry-linked training, specialised technical programmes and continuous upskilling can help build a workforce equipped to meet the changing requirements of the sector.
4. Regulatory Barriers and Global Market Competitiveness: Indian construction equipment manufacturers may also face regulatory challenges when entering international markets. Export procedures and homologation requirements, which involve certifying equipment against prescribed technical and regulatory standards, can make market access more complex. Simplifying export and certification procedures, providing clearer regulatory guidance and supporting manufacturers in meeting international standards could help improve their access to global markets.
Way Forward
The Scheme for Enhancement of Construction and Infrastructure Equipment (CIE) represents an important step towards strengthening India’s domestic capability in high-value and technologically advanced equipment. Going forward, its success will depend on translating the proposed ₹14,300 crore seven-year financial framework into timely investments, higher domestic value addition and measurable improvements in manufacturing capability.
Over the seven-year period, the scheme’s efficacy can be maximised through phased implementation, periodic review of outcomes and timely adjustments based on industry requirements and implementation experience. Clear eligibility criteria, competitive beneficiary selection and regular reporting of investment, import substitution, domestic value addition and export performance will be important for ensuring effective implementation and accountability. This approach can help ensure that the financial support delivers sustained improvements in manufacturing capacity and strengthens the sector beyond the duration of the scheme.
The scheme should also focus on building a complete manufacturing ecosystem rather than expanding production alone. Greater investment in R&D, advanced technologies, testing facilities, component localisation, skilled manpower and MSME supplier capabilities can help Indian manufacturers move towards higher-value equipment. At the same time, access to suitable financing will be important as the industry adopts advanced, automated and cleaner technologies.
In the longer term, the CIE initiative can complement India’s expanding infrastructure programme while strengthening the domestic capital goods sector. A stronger indigenous equipment industry can support infrastructure creation, technological capability and greater integration with global markets. The way forward therefore lies in coordinated action among the government, manufacturers, MSMEs, financial institutions, research institutions and skilling bodies, supported by measurable outcomes and continuous policy review.
References
Press Information Bureau (PIB), 2026, Union Budget FY 2026–27: Strengthening Capital Goods Sector, Government of India, 3 February 2026.
pib.gov.in/PressNoteDetails.aspx?id=157180&NoteId=157180&ModuleId=3®=48&lang=2
Prime Minister’s Office (PMO), 2016, National Capital Goods Policy, Government of India, 25 May 2016.
https://www.pmindia.gov.in/en/news_updates/national-capital-goods-policy/
Rajya Sabha Secretariat, 2026, Press Release on 332nd Report Pertaining to the Ministry of Heavy Industries (MHI)
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2238257®=3&lang=2
Indian Construction Equipment Manufacturers’ Association (ICEMA), 2025, Indian Construction Equipment Industry Achieves 3% Growth in FY25 Driven by Strong 10% Export Surge Amid Subdued Domestic Market,
https://www.i-cema.in/wp-content/uploads/2025/06/ICEMA-Press-Release_Annual-Sales-Report-FY25_28May25.pdf
Bhatia, A., Murjani, N., Saharan, A., Pawar, L., Bang, P., Bhatia, V. & Jain, S., 2026, Pressing the Throttle: Unlocking India’s Mining and Construction Equipment Industry’s Potential
https://www.bcg.com/publications/2026/india-pressing-the-throttle
Kearney, 2025, Path to Viksit Bharat: Making India a Global Manufacturing Hub in the Mining and Construction Equipment Sector,
https://www.kearney.com/industry/industrial-goods-services/path-to-viksit-bharat-making-india-a-global-manufacturing-hub-in-the-mining-and-construction-equipment-sector
About the Contributor:
Tanisha Hooda is a Research Intern at the Impact and Policy Research Institute (IMPRI) and a B.A. (Hons.) Economics graduate from Manav Rachna International Institute of Research and Studies (MRIIRS), Faridabad. Her research interests include competition policy, digital economy, public policy, and economic development, with a focus on analysing the socio-economic implications of emerging policy frameworks.
Acknowledgement- The author extends sincere gratitude to Lahari and Sandra Menon for their valuable guidance, support, and review of the Policy Update.
Disclaimer
All views expressed in the article belong solely to the author and not necessarily to the organization.
Reviewed by Lahari and Sandra Menon.
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