The forging industry is looking at doubling growth rates, spurred by imminent demand from emerging sectors
With manufacturing gradually picking up and several emerging sectors opening up new opportunities, the more than $18 billion Indian foundry or casting industry is looking to double growth rates.
The sector, which has been reporting a growth of 5-7 % in the last few years, is expected to clock 13-14% growth in the next couple of years, said top industry officials.
India is the world’s third-largest casting producer after China and the U.S. While China accounts for 40% of the world’s 105 million tonnes casting production, the U.S. and India each do between 11 and 12 million tonnes per year.
“Pan India, the targeted growth rate is 13% to 14% as compared with about 5% to 7% currently. This is due to Make in India and other efforts made by the government to rejuvenate the economy,” said Ravi Sehgal, an industry veteran who recently organised the 65th edition of the Foundry Congress.
“Growth in the auto industry, agriculture sector and the earth moving industry has given us new hopes. Once the mines reopen, business is set to grow,” he added.
A couple of years ago, the industry was passing through a tough time with many units shutting down due to lack of business. But now, there is optimism.
“The bloodshed has stopped. In the future there are more opportunities and people have understood that they would focus on technology as new opportunities are going to provide growth,” said said Anil Vaswani, President, Institute of Indian Foundrymen (IIF), the apex body of the Indian foundry industry.
“Though the industry is hit by demonetisation and the effect of GST is yet to come, still, there is a sense of positivity. With the opportunities, we are doubling the growth targets,” he said.
The growth is expected to come from agriculture, infrastructure, water pipes, wind turbines, automotive, railways, defence and oil & gas sectors, industry players said.
“Emerging opportunities are investment in infrastructure, in oil and gas within the country, mining sector, railways and defence. These sectors will drive the future of the industry,” said Dr. Nithyanandan Devaraaj, National Secretary of IIF.
“The money that will come into manufacturing will drive the growth of the foundry industry. This will also help in employment generation as well,” he said.
Industry players said the first two years of the NDA government did not deliver any major infrastructure projects. But now that the government has actually settled in, it is kick starting infrastructure development, they said.
Large orders are expected from the railways sector as more than 2,000 locomotives are to be manufactured in India. New rail lines also provide opportunities for the foundries, industry executives said.
While automotive, the main stay of the sector, is picking up, the tractor industry is also poised for growth as India had a good harvest this year.
More mechanised methods of farming to improve yield will be required to double the income of farmers as set by the government. The budget’s thrust on farmers will help the foundry industry, officials said.
Earth-moving equipment is set to get a boost from mid-2017.
The central government’s decision to provide clean drinking water in every village will also augment business for the sector.
Thousands of kilometres of pipes will be laid. The pipes will need lot of fittings, valves and controls. These will give a boost for the casting industry for the next 5 years, sources said.
Companies in the sector are expecting to boost their exports as well.
“The Indian casting industry caters to only 4% of the global market. We can scale up the exports further and do good for the sector. If we can achieve 6-7%, we will be almost doubling the capacity. So, there is huge potential for exports,” Mr. Seghal said.
Despite the opportunities, the industry is faced with several challenges and these need to be addressed on a priority basis.
The main challenge bogging the industry down is lack of resources for technology upgradation and access to quality manpower.
“The biggest challenge that we are facing is from the consumer durable industry which is not paying the right price. The consumer durable industry has to be more supportive,” said Dr. Devaraaj.
“If we get better prices in the market, we will be able to upgrade the technology. As long as the foundries do not get the right prices, investment will not come. Similarly, we need to pay more to attract talent and earn more to make it attractive for the next generation to join the business,” he added.
Since a career in the foundry industry is not typically sought out by aspiring youth entering the workforce, attracting new talent has become a challenge. So, the perception on the foundry industry has to change and the industry needs to be profitable to pay higher wages.
Companies need to upgrade the technology and make their foundries clean, non-polluting, and provide worker-friendly environments.
Indian players are facing huge quality issues in the export markets.
Cost of fuel and power in India is almost double that in China, Germany and even Turkey. The government has to address this problem to make India internationally competitive, players said.
“If skill development and technology upgradation are taken up urgently, we can take care of 60% of the problem,” said Mr. Vaswani.
Today, the situation is such that while the large foundries are succeeding, the small and medium-sized ones are struggling to survive.
“Casting industry is a low margin industry and unless people do value addition it would be difficult to survive,” Dr. Devaraaj said.
Besides, large corporate and OEMs, which are profiting through the Make in India policy, are seen not passing on the benefits to the value chain.
“Most MNCs in the SEZs are raking in the profits and business is not coming to Indian foundries,” alleged Dr. Devaraaj.
“The OEMs must start to nurture the casting industry. The government has done its bit. Now it is for the OEMs to support with better sourcing and pricing,” he added.
Trade protectionism is another issue that the that the industry needs to deal with. Today, there is a significant amount of exports to the U.S. as well as Europe.
If, under the Donald Trump administration, the U.S. bans import of casting or if it steeply increases import duties, the industry would then have a challenge to deal.
In that case, Europe will become a major destination for exports followed by other counties in Latin America and Africa.
Coimbatore is the largest foundry cluster in India having 300 to 400 foundries focusing on technology and value-addition. The cluster is focused on steel castings, pump bodiesand forging components. Second comes the Kolhapur cluster, focused on automotives.
While Rajkot is emerging as another cluster, Belgaum and Shimoga are also rising in a big way in the South. Other clusters include those in Howrah, Faridabad, Agra, Jalandhar and Batala. India has about 5,000 foundries making all types of castings.
While 5-10% of them are very large foundries, about 30% are medium-sized ones with an annual turnover of ₹100 -150 crore. The rest are small and micro units.
“A majority of the foundries in India are SME foundries. These are very small and very valuable. They are the ones in maximum need of assistance from the Government in terms of technology, automation, rejection reduction and efficiency improvement,” said Mr. Vaswani.
Then only the industry will be on a sustained growth trajectory even though 3D printing is gradually picking up, to begin with, doing low volume, complicated and special applications component jobs.