PRESS NOTE:
Pune 17th February, 2009
FORGING INDUSTRY CRYING OUT FOR HELP! IS SOMEBODY LISTENING?
The interim Budget announced on 16th February,2009 contains little for industry as a whole and more so for the forging industry which is firefighting.
The forging industry has for the past two years cried out for help to all the concerned quarters. Unfortunately the pleas for assistance have not been taken seriously. However, nothing much has happened despite everybody agreeing to its plight.
Almost everyday there are reports reading “ …… announces block closure, …. Brings down its shutters” and so on. The most recent example that can be cited is that of AMFORGE INDUSTRIES LTD.,( a company which is engaged in manufacture of forgings as long back as 1948 and is known for its quality products,) has applied for pulling down its shutters. There are indications of a few more in the pipeline and there may be many more to follow suit.
Is anybody listening? Or perturbed regarding the state of affairs (especially of SMEs) in this ancillary to automobile and other engineering manufacturers, but nevertheless important sector of the economy.
Delay in payments, especially from the OEMs and Tier-I customers, have put unbearable pressure on the financial situation of the forging companies. Moreover, customers are insisting on forcing the steel price reductions without even consuming the old inventories and steel stocks that result in crippling losses, which the forging companies can ill-afford in these tough times.
It is evident from the state of affairs that the companies in the forging industry (and perhaps from other sector too) have not benefited from the recent spate of concessions announced by the Govt. and RBI. As indicated, at several forums, the GDP is not slated to improve during the next fiscal also on account of the global slowdown. If the present crisis is to improve it will require imaginative and unconventional solutions on various parameters coupled with much more understanding and cooperative approach from forging customers. As indicated earlier, because of this, the fiscal and monetary stimulus announced so far, which have been stereotype, have failed to induce demand.
There are many more areas which could be looked at besides providing fiscal and monetary reliefs alone, so that the most important factor of all causing this crisis is tackled i.e. DEMAND.
Despite the fact that the present crisis started way back in Sept.2008, the forging manufacturers have been so far adopting a ‘never –say- die’ attitude in order to survive. Despite the worsening situation day by day, they have battled it out so far to protect their work force and avoid the resultant job losses as far as they can stretch it. In some cases the trade unions and workers have also cooperated by showing understanding and patience during these trying times. However the situation is now getting out of hand for most in the industry, especially with fierce competition of cheaper finished forgings from China.
The Association of Indian Forging Industry has been in the press many a time with suggestions for addressing the problems facing the industry, including talking to the Government and Reserve Bank of India. We are glad that some of these suggestions esp. on the financial front have been accepted and implemented. But not enough has been done. The major problem of demand still remains which is forcing units to close down shutters. The Central and State Governments could jointly address these perhaps?
For instance,
I. TO BOOST DEMAND:
Ø The State Governments must abolish Octroi (wherever it is still levied) for the present.
Ø Immediate abolition of the 2% Central Sales Tax (CST) without waiting for two years, since it would provide substantial relief on an immediate basis as also boost demand.
Ø The worn out Urban Municipal Transport and State Transport buses throughout the country, could be replaced with newer buses. In fact, we suggest that there should be a complete ban on buses which are more than 10 years old plying in the cities as also in the rural and semi-urban areas. This would also serve to reduce the resultant pollution, perhaps the various State transport organizations could earn and sell carbon credits.
Ø Reduction in interest rates and soft loans may be made available to purchasers of vehicles.
Ø In connection with the above, the Govt. could look at providing some incentive to individual owners to replace old vehicles besides restricting the number of years that a vehicle could be used for, on the lines of what was done in Europe in the mid-eighties to encourage the use of greener vehicles. This would boost the demand for vehicles.
Ø Immediate and substantial reduction in the prices of petroleum products.
Ø As a corollary, the work of upgrading of National and State Highways could be taken up on a war footing, which would boost demand in the infrastructure segment.
Ø The Transfer of Development Rights (TDR) charges levied in construction could be reduced as an incentive for construction and allied activities.
Ø To augment all these efforts and to provide a fillip to the demand in the infrastructure sector, a fast track system should be introduced immediately for execution of pending and delayed projects, In other words, pending allotments need to be looked into, the reasons for those projects which have been caught up in undue delays in commencement etc should be looked into immediately by the Government.
Ø As an incentive and for boosting the demand in the housing sector, the registration fees and stamp duties could be reduced or even abolished for a certain period till the demand in this sector picks up. This is especially suggested since it has been observed that despite reducing the rates of interest on housing loans, there are no takers since the impact of this would be minimal for inducing borrowing for housing. Besides banks have also been reluctant to give effect to this relief announced, as also tardy in announcing these rate cuts.
II. TO BOOST EXPORTS:
Ø Bring down steel prices in consonance with international prices.
Ø Increase DEPB benefit to Exporters.
Ø Levy duty on import of auto components.
III. TO ADDRESS THE LIQUIDITY CRUNCH:
Ø Reduced interest on working capital requirements and long term loans.
Ø Restructuring of delayed loan payments without penalty.
Ø Relax NPA norms pending restructuring to cushion companies in the depressed market which would avoid penalty also.
The above measures have been suggested with a view to give a fillip to the demand indirectly also for the forging industry.
The aforesaid measures could be taken up for implementation immediately so that further damage could be arrested in major sectors of the economy which is bound to have a cascading effect on other sectors also.
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