The slump in the global auto sector has in turn affected the Rs 10,000 crore Indian forging sector which has incurred a loss of Rs 500 crore, and prospects continue to look bleak

The economic recession has led to a slump in the global auto sector, which has in turn crippled the Rs 10,000-crore Indian forging sector. The sector has incurred a loss of about Rs 500 crore since September 2008.

Due to the rapid fall in export volumes and plummeting domestic sales growth, the sector has witnesseda loss of around 50,000 jobs in the past few months. Given the current scenario, it is anticipated that the sector will witness an even higher number of lay offs in the near future.

Effect on the SME segment

Small and mid-sized units, dominating the sector, have been struggling to stay afloat. This is primarily due to a sharp decline in their business volumes, perpetuated by the plunging demand for auto components and industrial spare parts.

Several units in the SME sector, clustered around the three auto hubs of Pune, Chennai and Ludhiana have reported a dip in their topline growth during the last two quarters of 2008-09.

SR Somavanshi, Secretary, Association of Indian Forging Industry (AIFI), says, “About 70% of the production from the forging sector goes to the auto industry. However, following the demand slump for auto parts in the global auto sector, small as well as mid-sized forging firms have been severely affected.”

Many forging companies in India have shut down, while others are cutting the output levels. “Presently, most of the forging units in the country are operating at 20% to 30% capacity due to the fear of inventory pile-up. In addition, the slump in the automobile demand has further discouraged auto component forging units, in particular, to expand their production,” reveals Mr Somavanshi.

No relief for forging industry

The government initiatives to improve the credit flow to the forging sector have proved inadequate so far. As Barun Kumar Ghosh, Proprietor, Asiatic Steel Enterprises, mid-sized forging company in Kolkata, says, “Though measures have been taken by the government to infuse liquidity into the monetary system, banks and financial institutions are reluctant to fund small forging units due to the bleak market outlook. Even companies with good financial results have been struggling to secure funds from banks”

Bleak prospects

The prospect for the coming quarters does not look bright as there is no indication of market revival till September 2009. With forecasts for the next few quarters looking bleak, small and mid-sized forging will have to exercise greater prudence until demand picks up.

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