Lockdown-hit forging industry unlikely to utilise 50pc capacity in next 6 months: official

The domestic forging industry, which largely depends on auto and auto-ancillary sectors for business, is unlikely to utilise more than 50 per cent of the total capacity for the next six months owing to the coronavirus pandemic, an industry official said.

The Rs 34,000 crore industry employs three lakh people directly and another 3 lakh indirectly and as much as 50-60 per cent of the workforce consisting of migrants.

The vehicle production declined 14.71 per cent to 26,362,282 units in the last fiscal as compared to 30,914,874 vehicles in FY2019.

However, the forging industry witnessed an estimated 23 per cent fall in the capacity utilisation at 23.50 lakh metric tons as against 30 lakh metric tons in the year-ago period, according to S Muralishankar, President, Association of Indian Forging Industry (AIFI).

 

At the same time, total capacity stood at 47 lakh tons in 2019-20 as compared to 45 lakh tons in FY2019.

The combined annual revenue of the companies is also estimated to have shrunk almost by a quarter to Rs 34,000 crore as compared to Rs 45,000 crore clocked in the fiscal year ended March 2019.

"Last year (FY20), the industry on average went down by 20-25 per cent in terms of both production and revenue than the previous year. But some of the companies, which are primarily dependent on commercial vehicles, went down by 50 per cent.

"For the current year, most of the forging companies are expected to utilise only 50 per cent of the capacity for the next six months," Muralishankar told PTI.

He said that the industry was not very optimistic even before the commencement of the new fiscal as it was not sure whether ramp up in the wake of BSVI norms form April 1 will happen at a fast or slow pace, adding, "now because of the COVID-19, we will be doing 50 per cent of what we are doing last year."

Muralishankar said that forging industry has sought relief package from both the central government and state governments.

The industry is looking for relief measures such as waiving of fixed power charges, relaxation in GST and loan-repayment, interest subvention, and deferment of statutory taxes, among others till the time it stands on its own legs.

There are a total of 317 forging units in the country with 59 per cent of them very small, 24 per cent small and 9 per cent medium units. Only 6 per cent are large units and the number of very large units is just 2 per cent, according to the AIFI.

Though the majority of the auto and auto components production remains suspended since March 25, some units have commenced partial operations at their plants following a Ministry of Home Affairs (MHA) notification.

Under the new MHA guidelines for the extended lockdown period up to May 3 to contain coronavirus infection, the government, private industries and industrial establishments operating in rural areas, outside the limits of municipal corporations and municipalities, have been allowed to operate from April 20.

Muralishankar said that practically two months will go without any production as some of the international markets have extended the lockdown to May 31 and even most of the customers abroad have also shut down.

So even if production activities began from May 4 onwards, there are a lot of challenges involved in it.

"The customers should have the entire supply-chain working because some of them will be buying from abroad and because of the non-availability of one product, the entire line gets disturbed," he said.

Moreover, the industry employs about 50-60 per cent migrant labour and all of them are not from other states but from within the rural areas of the states.

"These people have left the city and might not be willing to come back. They might prefer staying back safer near their homes in rural areas with less income than coming back to big cities for the fear of catching the infection.

"So, the business is not going to be as usual and we will now have to look at ways and means to manage people who are around that locality and where ever possible do automation," he said.

Pointing out that the states are not going to open their borders for public transportation in the immediate future, he said that the restrictions on the people's movement is also likely to be there for some more time based on the colour coding of the affected districts or areas.

"Therefore, there will not be job losses in the industry but it will be another way round. We may not have enough labour as those who have already left will not be returning back and there is going to be a major shift in workforce alignment post lockdown period," he said.

He said that the industry has already started looking at business from other segments such as defence, aerospace and metro rail.

At present, as much as 80 per cent of the forging industry's business comes from the automobile sector.

"In the long run, there are opportunities from the defence sector and the metro sector. Moreover, Already both Japanese and South Korean companies are looking at moving their business out of China and the same trend will be there with European and North American companies.

If the industry is able to capitalize on that and if the scrapping policy is announced then the forging industry production can cross 30 lakh metric ton by 2021-22", he said.