New Delhi: The apex body of the forging industry in India, the Association of Indian Forging Industry (AIFI) on Tuesday expressed concern about the lack of demand with respect to fresh orders from the automotive sector.
With the ripple down effect of slumping automobile sales, the forging industry is facing the heat with a sharp decline in demand which has resulted in substantial production cuts, AIFI said in a release.
The industry body pointed out with the auto sector witnessing the worst ever slowdown the forging industry has witnessed a corresponding average slowdown to the tune of 25 -30 per cent.
Speaking on the issue S Muralishankar, President- AIFI said, “The recent slew of festivals saw few car manufacturers reporting a decent increase in sales at the retail level. As a result, we witnessed inventory clearance at the dealer level. The production and demand at the manufacturing level haven’t seen any upward movement because of which the forging and auto-component sector continue to reel under the Auto slowdown.”
“Currently, there is a huge inventory build-up due to poor demand and to curb this, many forging units have been making proportionate cuts in terms of working hours and production,” he added.
Muralishankar further added that if this scenario stretches further, there could be more production loss and job cuts.
Besides, the industry is also on the verge of facing the issue of obsolescence on account of the looming changeover to BS-VI norms from BS-IV with effect from 1st April 2020.
The industry is also dealing with many other challenges that seem to hamper the overall growth in the long run.
Issues like drop in the value of currently non-moving inventory due to downward commodity price corrections, difficulty in meeting repayment requirements of loans and interest liabilities due to the reduction in capacity utilisation.
The sector’s financial health went from bad to worse. Issues with payments and lack of demand, combined with market issues, threaten MSMEs ‘ survival in the country.
In a recent development, the RBI instructed state-owned banks not to declare stressed assets of MSMEs as non-performing assets (NPAs) until March 31, 2020, as the current norms stipulate that if over 90 days, any default should be listed as NPA.
But industry feels declaring NPA after 91 days is not practical as most customers don’t pay to MSMEs on time, causing immense liquidity issues and few smaller associations have highlighted this the RBI requesting seeking an extension up to 180 days, the statement added.
The Indian Forging Industry primarily caters to the $57 billion Indian Automotive Industry, which accounts for 60-70 per cent of the forging production.
With an annual output of about 30 lakh metric tonne, the Indian forging industry has about close to 400 forging units, of which 83 percent can broadly be categorized as tiny and small enterprises. While 9 per cent are medium sized, the remaining being large scale.