India has launched a substantial incentive programme worth $1.2 billion to boost domestic manufacturing of high-value construction and infrastructure machinery. The initiative comes as part of the government’s strategy to lessen reliance on China for critical machinery needed for infrastructure development. The scheme aims to draw in approximately $1.8 billion in additional investment over a period of seven years by providing incentives to local manufacturers.

The equipment targeted under this initiative includes essential machines like tunnel boring machines (TBMs), firefighting systems, and elevators commonly used in high-rise constructions. Despite witnessing rapid growth in the construction sector, India continues to heavily rely on imports for key machinery required for infrastructure projects. This dependency is particularly pronounced in the case of TBMs, specialised machines essential for digging tunnels for metro rail and other underground infrastructure.

China has emerged as one of the principal suppliers of these machines to India, making the proposed scheme vital in addressing this reliance by encouraging Indian companies to manufacture the necessary equipment locally.

Challenges Faced Due to Reliance on Imports

The reliance on imported construction machinery has built up over time as India lacks adequate domestic capacity to meet the growing demand for such equipment. Infrastructure projects that utilise TBMs are significantly dependent on foreign suppliers, maintaining the vulnerability of these projects to disruptions in overseas supplies. The situation has been compounded by tensions in India-China relations following violent border clashes in 2020, which have influenced trade policies and investment activities.

New Delhi has instituted certain limitations on investments from Chinese firms and their involvement in public procurement. Subsequently, China has progressively tightened its export protocols for TBMs to India, impacting the flow of essential machinery. For instance, imports of tunnelling machinery from China plummeted to $3 million in 2023-24 from $18 million the previous fiscal year, later barely recovering to $800,000 in 2025-26.

Discussions held between India and China last year led to a slight easing of restrictions on imports and investment, allowing limited participation of Chinese firms in government contracts from 2026 onwards. However, the incident underscored a significant challenge: limiting imports does not in itself cultivate domestic manufacturing capacity.

Focus on Enhancing Local Manufacturing

The newly proposed incentive programme aims to remedy the situation by making local manufacturing more economically attractive compared to the current import reliance. The government’s objective is not for companies to merely assemble imported components but to establish a robust local manufacturing ecosystem capable of producing foundational machinery without dependence on foreign suppliers.

Bharat Earth Movers Limited (BEML) is one entity likely to benefit, as it is exploring avenues for local manufacturing of TBMs. Other manufacturers such as Larsen & Toubro and Johnson Lifts may also stand to gain from the forthcoming scheme. A definitive decision on the proposed incentive plan is expected shortly, with ongoing responses awaited from the ministries of heavy industries and finance.

As the construction and infrastructure equipment market is currently valued at around Rs 1 lakh crore ($10.4 billion) and shows promise for further expansion, this initiative comes at a strategic moment. The wider ambition is to foster domestic capabilities to produce machinery that demands advanced technology and significant investment, facilitating Indian manufacturers to ascend the technology ladder and enhancing the nation’s global competitiveness in equipment manufacturing.

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