A single car requires at least 13,000 components on an average, a majority of which are produced by foundry clusters around the country. Despite being the backbone of industry, this sector is often glossed over.
Threatened by China, sagging on the investment and infrastructural front, short on skilled labour and tied down by a highly regulative regime, for the past five years, growth in India’s $18 billion foundry sector has become sluggish, and according to industry insiders, galvanisation is dependent on governmental support.
“We need help from the government on the fiscal side. We need growth in infrastructure, employment so that people have more money in their pockets and they can buy cars. We need infrastructure because we are essentially a supplier industry. We depend on and survive on derived demand,” says Dr. Vinay Bharat Ram, CEO of DCM Engineering, one of the leading foundries in the segment of automotive castings.
Currently, the sector is only using 65 per cent of its total capacity and it is estimated that it will require an influx of investments worth at least $3 billion to meet the increasing domestic demand for castings which is expected to triple over the next decade. The foundry industry, which is composed of a number of small to medium-sized enterprises, collectively produces 10 million tonnes, as of today.
The Sleeping DragonGlobally, India is third in metal castings production, behind China and the USA, with 9.81 million tonnes of production for 2014. However, a glance at the global charts reveals that global leader China dominates by a gargantuan margin, with production estimates which are nearly double of India and USA combined. This, particularly in lieu of the Yuan’s weakening, could spell greater trouble for Indian foundrymen.
“In China, with lower growth and more capacity becoming under-utilised, there is a threat of dumping of foundry items into the export market which includes India,” says Ram, adding that quick action needed to be taken to prevent the likelihood of this. “In India, we have to watch out for this and alert the World Trade Organisation and our own government to see that there is no dumping from China of these kinds of items,” says Ram.
On certain castings in particular, India suffers a cost advantage whereas China stands to benefit to the extent of 5 per cent because of the free trade agreements which are in place, according to The Institute of Indian Foundrymen (IIF), an industry body promoting competitiveness in the sector. There is worry that this will create a dent in exports from India.
Hopeful For A Turnaround And Operational FreedomThe essential nature of the foundry sector is that, as an ancillary arm of industry, its success is completely reliant on consumer demands for the likes of automobiles, railways, machine tools, heavy manufacturing equipment and tractors. The current governmentally infused rhetoric around Make in India and loosening of FDI, generally has the foundries optimistic about a turnaround, but concerned about their ability to keep up.
“We are waiting for demand to improve. But even if demand goes up, both local and export, let me tell you that the kind of industry which we are running, which is a component industry. So if automobiles are exported, then indirectly our products are also exported,” says Ram, “Although there are opportunities on the horizon, right now, the situation is grave on the account of the fact that the demand is not robust and that we need governmental help on various fronts such as the simplification of procedures in terms of environmental consent.”
A.K. Anand, IIF’s director, explains that at the moment procedural requirements compel foundries to obtain consent and clearances to operate on an annual basis. This is something that he believes is unnecessarily cumbersome and IIF is pushing for its revision.
“We don’t mind paying the fees for 5 to10 years together, but the period of operational consent needs to be increased to 5 to 10 years. Similarly, you should be able to get consent for everything at one place instead of running to one office for water, another for waste management, etc,” says Anand.
In the quest for greater competitiveness, another thing the sector is canvassing for is the reduction of duties on the inputs it requires. India is unable to locally generate enough scrap (which contributes to 40% of any foundry item’s value) to fuel its foundries which means that the industry is completely dependent on imports. Other imports the sector needs are various alloys, metallurgical coke and pig iron.
Ram adds, “We should not allow exports without value addition. What is the point of exporting raw materials when you can export value added items. When you export raw materials, you make it costlier for the manufacturer who is adding value. Put duties on exports and to compensate the industry, remove duties on raw materials imports.”
BW Reporters
Simar Singh is one of the youngest members of the BW team. A fresh graduate from IIMC, she also holds a degree in political science from LSR. She enjoys covering power, startups, lifestyle and a little bit of tech.
