The Rs 10,000-crore forging industry is fighting for survival due to slowdown in the auto industry and lack of availability of credit from banks, industry officials said.

The industry consists of over 700 units in the SME sector and is clustered around the three auto hubs of Chennai, Pune and Ludhiana. Exports account for about 10-15 per cent of the output, while domestic sales account for the rest.

“Over the past several months, more than five units have shut down and many others have seen unprecedented production cutbacks. In all, over 50,000 jobs have been lost across the country. A large number of units are facing extinction,” Vidyashankar Krishnan, managing director of MM Forgings said.

He added that the industry has lost about Rs 500 crore in revenue since September 2008, due to fall in auto demand, mainly in commercial vehicles. Indian commercial vehicle sales fell 16 per cent to 288,140 units between April and December 2008, against a growth of 3.6 per cent in the same period last year, according to the society of Indian automobile manufacturers SIAM).

Krishnan, also the president of association of Indian forging industry (AIFI), said that most of the units went in for capacity expansion in June due to robust demand from the auto industry, but by the time they were ready, there was a severe fall in demand and many of the units are operating at 20 per cent to 30 per cent capacity due to inventory pile-up, while the auto industry is demanding cut in prices. Meanwhile, auto markers have started importing cheaper parts from China and Korea, he added.

“Even banks are not lending to SMEs, despite the Reserve Bank’s directive because they have turned risk averse and are keen on parking there funds in government securities,” Murali Shankar, director-technical at Super Auto Forge pointed out.

Banks need to ease credit and even companies with good balance sheets are struggling to get credit from banks, Krishnan added.

Meanwhile, with the big three automakers GM, Ford and Chrysler struggling, exports have also taken a hit. “The big three have been manufacturing 50 per cent less vehicles than normal in the last five months, due to recession,” S Ravishankar, director, exports at Super Auto said.

“With bankruptcy threat looming, we are demanding letter of credit from global auto makers, which they are refusing to provide. While we are also not able to get insurance cover from the Export Credit Guarantee Corporation of India, who are averse to new customers,” he added.

Published in The Hindu dated. 3.4.2009.