ICRA forecasts muted growth for mining and construction industry in FY26

ICRA predicts 2-5% growth for mining and construction in FY26 due to factors like erratic monsoons, delayed project awards, and rising equipment costs after regulatory changes

Don't want to miss the best from Business Standard?

The Indian mining and construction equipment (MCE) industry is set to report muted growth of 2–5 per cent in 2025-26, as domestic demand remains under pressure due to a combination of erratic monsoons, delayed infrastructure project awards, and rising equipment costs following regulatory changes, ICRA said in a statement.

 

“Early onset of monsoons and unseasonal rains in some regions of the country disrupted construction and mining activities in Q1 FY2026 (April-June),” said Ritu Goswami, Sector Head at ICRA. The impact was visible in Coal India’s flat production figures and the sluggish activity in major infrastructure schemes such as the Jal Jeevan Mission (JJM), she added.

 

From 1 January 2025, the sector transitioned to CEV (Construction Equipment Vehicle) Stage-V emission norms and mandatory safety features for wheeled equipment. “This has led to increased prices for compliant machines, which are likely to be passed on to the customer (partly or fully) over the next few quarters,” Goswami said. These cost escalations, combined with weak project awarding activity and the seasonal sales slowdown during the monsoons, will collectively subdue demand in the first half of the fiscal, she added.

 

Data from the Indian Construction Equipment Manufacturers Association (ICEMA) shows a 1 per cent year-on-year decline in overall industry volumes in Q1 FY2026. Domestic volumes fell by 4 per cent, but a robust 31 per cent growth in exports cushioned the dip, driven by backhoe loaders, excavators, and skid steer loaders, which together made up 76 per cent of export volumes. 

 

Despite current headwinds, ICRA remains optimistic about a demand revival in the latter half of the fiscal, supported by a government capital outlay of ₹11.2 trillion for initiatives such as JJM, Pradhan Mantri Gram Sadak Yojana (PMGSY), and Pradhan Mantri Awas Yojana-Gramin.

 

“Continued emphasis on sectors including transportation, water supply and sanitation, and irrigation is anticipated to result in an increase in new project awards and execution, thereby supporting domestic MCE demand,” said Goswami. Industrial and warehousing construction demand is also expected to remain steady due to a strong domestic market focus.

 

Meanwhile, the export outlook remains positive, even as the industry awaits clarity on a potential 26 per cent reciprocal tariff by the US. “Opportunities in alternate markets continue to offer significant diversification potential,” ICRA noted.

 

Financially, OEMs saw only single-digit revenue growth in Q1 FY26, with margins under pressure from higher steel and compliance costs. However, the credit profiles of most players are expected to remain stable due to low leverage and healthy liquidity buffers.