The mechanization of the construction activity in recent times makes construction equipment a major part ofthe construction industry. The construction equipment amounts to 25% ofthe total cost ofthe project. Hence, financing decision ofthe construction equipment plays a vital role in the success and profitability ofthe project. Construction equipment can be procured by hiring or buying. This decision is influenced by various factors such as type ofthe project, scale ofoperations, tax rate, government policies etc. Procuring construction equipment and machinery is a high cost affair for most construction firms. With over 90% ofall construction activity executed by smaller players, the activity is widely dispersed. These players, because ofthe monopolistic nature ofconstruction, and with the government being the largest buyer ofthese services, face an erratic and unpredictable workload. As such the existing equipment stock itselfis highly underutilized. At present it is estimated that the country has an operating stock ofconstruction equipment valued at INR 75,000 crores and dormant stock ofINR 110,000 crores. With the increase in the size and complexity ofconstruction, construction equipment has become an indispensable part ofevery project. Several gigantic projects, which were beyond comprehension in the past have now been designed and are using sophisticated and heavy construction equipment. In fact, all aspects ofconstruction in some way or other depends upon equipment. Thus ifproper use is made ofthe construction equipment, they can contribute to economy, quality, safety and speed of a project. About 20 percent of the cost of a typical construction project is accounted for by the machinery and equipment. The current ratio may be over 30 percent. Buy or lease? That is a question being faced by many rural building businesses, even as credit becomes more readily available. While virtually everyone understands the simplicity ofbuying, leasing is far more complicated. Deciding the best strategy is a tough move for anyone. There is no one correct answer that fits every situation or every building business. Equipment leasing is generally a loan in which the lender buys and owns equipment and then 'rents' it to a building business at a flat monthly rate for a specified number of months. At the end of the lease period, the business may purchase the equipment for its fair market value (or for a fixed pre-determined amount), continue leasing, lease new equipment or return it. Although lease financing is generally more expensive than bank financing, in most instances it is more easily obtained. Leasing ofequipments and real assets is a prominent source ofprivate capital formation and a contributor to GDP in many developed and developing economies across the world. The equipment leasing (excluding real estate and consumer asset financing) as a percentage ofprivate capital formation was estimated at 16.4% for US, 16.2% for Germany, 23.8% for Brazil, 20.6% for UK and 2.2% for China in 2008. In contrast, leasing penetration in India is abysmally low and is estimated at 1.5% ofprivate capital formation in financial year 2010, which roughly translates into INR 20,000 crores ofannual leasing