4,000 foundry units face threat of closure

A slowdown in demand from engineering sector put 4,000 units in difficulties for survival

About 4,000 small- and medium-sized foundry units face the threat of closure, owing to inability to pass the steep rise in raw material prices to consumer industries, due to a fall in demand from downstream entities.

With an annual output of about 10 million tonnes, the Indian foundry sector has about 4,500 casting (molten metal) units, of which 85 per cent can broadly be categorised as small and medium enterprises (SMEs). While 10 per cent are medium units, the rest are large manufacturing plants.

While SMEs contribute 15 per cent to castings production, the medium and large plants contribute 85 per cent.

“These units (SMEs) need government support for survival, as weakening demand from consumer sectors has worsened their financial health,” said A K Anand, director, Institute of Indian Foundrymen.

In 2013-14, the foundry sector saw a slowdown, due to a fall in demand from the automobile and engineering sectors.

The overall manufacturing sector was hit by weak demand and delay in government clearances to various infrastructural projects. Several infrastructure projects in sectors such as power were severely affected.

There was delay in several infra project like power and others which has also severely affected the manufacturing sector .The overall sales have dropped by 25-30% .

Whereas the downstream industry such as auto, other consumers like railways, power, major machinery manufacturers are in better negotiating power and therefore the foundries in SME sectors face the problem in negotiating reasonable price compensation commensurate with the hike in input costs specially in auto sector which is major customer of foundry products. Although, the auto sector has been getting government support by way of reduced excise duty which has been further extended recently by six months, there is no such relief for foundry sector which is key feeder to the auto sector.

Meanwhile, in addition to 10-15% increase in labour cost, the prices of sand have gone up by 150% in last one year. Sand accounts for 8-10% cost of manufacturing cost of castings produced by sand moulding process.

IIF, therefore, demanded from the government to allow investment linked tax incentive for limited period to promote investments in productive and greener technology, extension and expansion of interest subvebtion scheme and allow duty free import of sector specific equipment not manufactured in India beyond a certain capacity in addition to allow accelerated depreciation on environment friendly and recycling equipment.

Meanwhile, casting buyers are not accepting even the legitimate and reasonable price compensations which is causing huge pressures on foundry operations. If reasonable profit margins are denied, the industry cannot invest in upgradation of the technology and processes which is expected from foundries by the buyers, Anand said.