While it will be some time before the impact of the steps to boost the economy announced by finance minister Nirmala Sitharaman on Friday becomes evident, the association of Indian forging industry (AIFI) has reported an average decline of 25% - 30% in production largely due to its high exposure to the automotive sector.
AIFI said the annual output of the domestic forging industry, comprising about 400 units across India, was 30 Lakh metric tons in FY2019, with a total output valuation of up to ₹50,000 crore.
In an interaction with Mint, S Muralishankar, president, AIFI said, “Earlier, the capacity utilization was about 70%. This is now reduced to 50% as the average production has declined 25% - 30% year-on-year on the total output of the forging industry from November 2018 to July 2019."
The automotive sector is the largest customer of the forging industry. According to AIFI, forging industry’s exposure to the automotive is in the range of 60%-65%. Meanwhile the remaining 35% exposure comes from other sectors including oil and gas, and aerospace.
About 83% of the domestic forging industry, representing the lowest level in the automotive product development value chain, comprises small and medium enterprises (SMEs). The other medium, large and very large companies constitute the remaining 17% of the industry. Bharat Forge, one of the leading automotive component manufacturers, falls in the very large category.
The forging industry provides direct employment to about 300,000 people and temporary jobs to about 60,000 – 75,000 workers. Adding to the impact of the ongoing economic slowdown on job losses in this space, Asheet Pasricha, core committee member, AIFI said, “While the temporary workforce faces threat of immediate job loss, the direct workforce remains underemployed due to the necessary block closures to align manufacturing with the market demand."
“So both these factors impact the employed workforce within the forging industry currently. 20% headcount is under threat of losing their jobs and another 15% of the total workforce faces the impact of underemployment," he added.
Muralishankar said most forging units are currently operating for only four days a week following irregular plant shutdowns by automakers.
AIFI officials have suggested that the downturn has resulted in 50% cut in the total man-hours at the forging units as the inventory pileup has breached alarming levels.
“To achieve operational cost effectiveness, we are required to produce a minimum batch while the deliveries take place on JIT (just-in-time) basis. So typically the inventory that we are required to hold is between 3-5 weeks. The raw material inventory is for another 15 days," explained Pasricha.
“The inventory at the moment is for 75-90 days, which is alarming and worrisome for the entire forging industry, especially for the SMEs," he added.