Even though the auto industry is finally getting back on track, the forging sector is still facing hiccups in tiding over the economic crisis. Majority of the forging units in the country are still struggling to get buyers for their products as the customers are opting for low-cost imported Chinese products.

The double whammy of declining sales and cheap imports in the domestic market has pushed several small forging units to the verge of closure.

Hit by cheap imports

The resurgence in the demand for auto parts has done little to improve matters for the small-scale forging units as the sales volumes and profit margins continue to remain muted. The stiff competition posed by the Chinese counterparts, coupled with the high input costs has raised concerns among SMEs about their competitiveness and sustenance.

'The dumping of low-priced goods in the domestic market by Chinese manufacturers is alarming since it is eating into the market share of the small-scale forging units. Consequently, a large number of SMEs are incurring huge losses,' says Barun Kumar Ghosh, Proprietor of Asiatic Steel Enterprises, mid-sized forging company in Kolkata.

The influx of cheaper Chinese forged components in India has not only cast a gloom over the profit outlook of the domestic small-scale industries but also posed a threat to the foreign direct investment (FDI) inflow into the Indian forging sector. Forging units across India, which witnessed a 45% drop in revenues in 2008-09, are anticipated to witness further fall in their margins during the current financial year on account of cheaper imports. 'Sales of forged parts have gone down drastically in the domestic market as cheap imported goods are readily available. Therefore, earnings of small-scale forging units are unlikely to witness a major improvement even though auto companies are reporting growing sales,' said Pran Bhalla, Spokesperson of DRP Metal Work, a small-sized cock and valve manufacturer in Ludhiana, Punjab.

The Association of Indian Forging Industry (AIFI) has also expressed deep concern over the issue of dumping of cheaper Chinese goods in the Indian market. In order to resolve this issue and prevent further losses, SMEs in the forging sector are seeking imposition of stringent anti-dumping laws and more tariff barriers on Chinese goods.

With government support and introduction of new technologies, the SME forging units can expect to counter the stiff competition posed by their Chinese counterparts

Published in Export Business Dated 7-9-2009.