India set to approve $1.2 billion incentive plan to make building equipment, sources say

Larsen and Toubro

21/08/2026 08:06

Scheme aims to draw $1.8 billion in fresh investment, provide incentives over seven years, sources say
Plan would set local value-addition targets for machines now fully imported
Imports of tunneling machinery have slumped since clashes on China-India border
By Nikunj Ohri and Sarita Chaganti Singh
NEW DELHI, Aug 21 (Reuters) - India is set to approve a $1.2-billion incentive scheme for the making of high-value, technologically sophisticated construction and infrastructure equipment, two government sources said, in a bid to reduce dependence on China for critical machinery.
The scheme, which is expected to be finalised soon, aims to draw $1.8 billion in fresh investment by offering incentives over seven years to domestic manufacturers of equipment including tunnel boring machines, fire-fighting equipment and elevators used in high-rise buildings, one of two the sources said.
India remains heavily dependent on imported tunnel boring machines, with China among the key suppliers of tunnelling and other boring equipment used in metro rail and highway construction, underscoring the country's long-standing struggle to build domestic manufacturing capacity.  
The government of Prime Minister Narendra Modi is making a renewed push to reduce reliance on key imports even as previous attempts to boost domestic manufacturing have failed to make a dent.  
The new scheme has been designed after assessing the incentives required to make local production viable against the country's existing import dependence, the sources said. 
The incentive plan could benefit state-run BEML BEML.NS, which has plans to domestically manufacture tunnel boring machines, along with other equipment makers including Larsen and Toubro LART.NS and Johnson Lifts.
The plan would also include targets for local value addition for machines that are presently fully imported.
A final decision on the incentive plan is expected soon, both the sources said. India's federal heavy industries ministry and finance ministry did not respond to a request for comment.
India's construction and infrastructure equipment market, valued at 1 trillion rupees ($10.5 billion), is set to expand as the country accelerates spending on roads, metros, airports and other infrastructure.
     
CHINESE DEPENDENCE
Following the 2020 deadly border clashes between Indian and Chinese troops, New Delhi had imposed restrictions on investments and public procurement from Beijing. 
In 2024, China gradually imposed restrictions on exports of tunnel boring machines by delaying customs clearances for shipments to India.
Imports of tunneling machinery from China dropped to $3 million in 2023-24 from $18 million a year earlier. They fell further to $500,000 in 2024-25, and were $800,000 in 2025-26.
The issue of easing restrictions on tunnel boring machines also figured in bilateral talks between the two countries last year. 
In 2026, India eased restrictions on investments made by Chinese companies and gradually allowed Chinese firms to participate in government contracts.
The incentive plan aims to address the gap where India does not have sufficient manufacturing capability and has high import dependency, the first source said.  
($1 = 95.6800 Indian rupees)
     

(Reporting by Nikunj Ohri and Sarita Chaganti Singh; Editing by Lincoln Feast.)
((nikunj.ohri@thomsonreuters.com; +91 90284 60730; Reuters Messaging: twitter.com/nikunj_ohri))