India Prepares $1.2 Billion Incentive Scheme to Boost Domestic Construction Equipment Manufacturing

India is preparing to approve a $1.2 billion incentive scheme targeted at the manufacturing of high-value, technologically sophisticated construction and infrastructure equipment, according to two government sources. The initiative is designed to reduce the country's reliance on critical machinery imports, notably from China.

Expected to be finalised soon, the scheme aims to attract $1.8 billion in fresh investments by offering financial incentives over a seven-year period. The program focuses on domestic manufacturers of specialized equipment, including tunnel boring machines, fire-fighting equipment, and high-rise building elevators. The plan includes specific targets for local value addition for machinery that is currently fully imported.

India's construction and infrastructure equipment market is valued at ₹1 lakh crore ($10.5 billion) and is projected to expand as the country accelerates spending on roads, metros, airports, and other infrastructure projects. However, the country has faced long-standing challenges in building domestic manufacturing capacity for certain heavy machinery. India remains heavily dependent on imported tunnel boring machines, with China traditionally serving as a key supplier for metro rail and highway construction.

Trade dynamics between India and China have shifted significantly in recent years. Following deadly border clashes between Indian and Chinese troops in 2020, New Delhi imposed restrictions on investments and public procurement from Beijing. By 2024, China gradually imposed export restrictions on tunnel boring machines by delaying customs clearances for shipments to India. Consequently, imports of tunneling machinery from China dropped from $18 million in 2023-24 to $3 million, falling further to $500,000 in 2024-25 and $800,000 in 2025-26. The issue of easing these restrictions was raised during bilateral talks last year, and in 2026, India eased restrictions on Chinese investments while gradually permitting Chinese firms to participate in government contracts.

The new incentive framework has been structured following a detailed assessment of the support required to make local production commercially viable against existing import dependencies. The policy is expected to benefit state-run BEML, which has established plans to domestically manufacture tunnel boring machines, alongside private sector equipment makers such as Larsen and Toubro and Johnson Lifts.

Both sources confirmed that a final decision regarding the incentive plan is expected shortly. Meanwhile, India’s federal heavy industries ministry and finance ministry did not respond to requests for comment on the matter.

"This upcoming $1.2 billion incentive scheme represents a strategic intervention to address critical supply chain vulnerabilities in India's infrastructure sector. By targeting high-value machinery like tunnel boring machines, the initiative creates a clear pathway for domestic players like BEML and Larsen and Toubro to build local manufacturing capabilities. For the broader business ecosystem, reducing import dependence through targeted seven-year incentives offers long-term stability and aligns manufacturing growth with the country's rapid infrastructure expansion." — Dr. Shishir Gupta, Founder & CEO, StartupLanes