Volatility in the price of raw materials to cause existential threat to the Foundry Industry

Foundry Industry, the key component feeder of metal castings to almost all engineering sectors, is facing existential crisis and almost on the verge of collapse.

West Bengal, the pioneer in Foundry Industry, where 95% of the foundries are run by MSMEs; and these MSMEs are supposedly the highest priority sector to the Central as well as State governments.

Foundry Industry is the 2^nd largest global producer of value-added metal castings with 12Mn TPA production, generating revenue of USD 19 Billion and exports of USD 3 Billion (approx.), which amounts to around 28% of overall exports from India (refer Annexure).  In FY 2021-22, engineering exports has reached record of US$ 111 Billion. Moreover, it employs 2 Million people – directly and indirectly.

Dinesh Kumar Seksaria, Chairman of IFA and Managing Director, Govind Steel Co. Ltd,  Akash Madhogaria, Vice Chairman (1) of IFA and Managing Director, Vikas Castings, Ajoy Kumar Madhogaria, Vice Chairman of IFA and Managing Director, NSI (India) Ltd were present at the press club to share their thoughts on the present challenges to the Foundry Industry.

In spite of facing several odds, the Foundry Industry was carrying on absorbing the high cost of power, since it is a power intensive industry and the cost of power is as high as 20% of the manufacturing cost.

But, the final blow that broke the entire column of the Foundry Industry is the unprecedented rise in the prices of key raw materials viz. pig iron, refractories, foundry flux and chemicals.  No amount of budgeting, using any costing jugglery whatsoever,can absorb such price hike and still be competitive.  The following chart bears testimony to the fact :-

                                                                        ( Prices in INR per MT )

From the above, it is quite clear that the prices of all raw materials have gone up and still going higher and higher.  With buyers mostly not agreeable to accepting price escalation, the burden of rising supplier prices is completely on foundries; which is not only eating into the profit margin, but also making them unviable.  Needless to mention, mere survival has become really tough.

Our demand from the authorities

Immediate

1. i)Temporary suspension on the export of pig iron and iron ore.  Though there is shortage of iron ore in the domestic market, but the export of iron ore has gone up more than 250% during the last 3 FYs.  Pig iron is also being exported in substantial quantity, though the Foundry Industry is finding it really difficult to procure pig iron at competitive rates.  Unless export duty for both these items is not raised quite high, not only the Foundry Industry, but the government also loses earnings through value added products like steel and metal castings etc.

1. ii)Import duty on pig iron, metal scrap, met coke and chemicals needs to be reduced.

Intermediate & Long Term support

iii)           Due to meager margin, the foundries are unable to invest in new technologies, which is very vital for global competitiveness.  Schemes like CLCSS, meant only for MSMEs, are quite old and the incentives need upward revision to augment investments for modernization.  The current cap of investment under the scheme is Rs. 100 lacs, which needs to be revised to Rs. 200 lacs.

1. iv)The Production Linked Incentive (PLI) Scheme introduced by the Government in March, 2020 was aimed at boosting domestic manufacturing under the ‘Atmanirbhar Bharat’ initiative of the Government to encompass the Foundry Industry.  PLIs are incentives to companies to boost production.  They can be in the form of Tax Rebates, Import & Export Duty Concessions, or easier land acquisition terms.  Generally, the benefits of PLI Schemes are passed on to the final consumers of the goods in terms of lower prices.

1. v)MSME Payments

The payments by most buyers are not made as per contract including PSUs.  The Facilitation Councils created by the Ministry are not effective and the claims are not settled timely – even takes several years at times.

There are incidents when the buyers become bankrupt and the dues of MSMEs are stuck.  The MSMEs must be allowed to be treated as other lenders such as bankers for the purpose of recovery of their dues in case the buyers go bankrupt.

1. vi)Performance Bank Guarantee and Earnest Money Deposit

(i)            The EMD exemption and 15% Price Preference, given to MSME Units, should be extended to medium category units also

(ii)           Security amount for MSMEs was 5% earlier for Railway orders, which has been increased to 10%; resulting in blockage of funds.  This needs to be reverted to 5% as before and may be allowed to be adjusted from bills.

vii)          Export Promotion

(i)            Merchandise Exports from Indian Scheme (MEIS) has been replaced by Refund of Duties and Taxes on Exported Products (RoDTEP), a new scheme with added benefits.  This is very crucial as many foreign buyers are considering shifting from China to India and discontinuation of MEIS will lead to needless disruption at this opportune time and result in loss of price competitiveness with respect to Chinese foundries.

(ii)           The ‘Sabka Vishwas Scheme, 2019’ for settlement of pending cases under Central Excise and Service Tax was a ‘great success, giving a big relief to medium and small enterprises’.  A similar scheme may be planned to settlement of Custom Duty matters including the settlement of non-fulfillment of obligations against EPCG.

viii)         Promoting Recycling

Promoting investment in sand reclamation plant by suitable investment linked incentive mechanism is urgently required.  A subsidy of 50% is proposed to promote investments in sand reclamation equipment.  This will help conserve natural resource and environment too.

Foundry Park

In order to facilitate modernization and expansion of Foundry Industry, the Association has formed a Special Purpose Vehicle (SPV), name and styled as ‘Foundry Cluster Development Association’, to implement the “Foundry Park” Project.  We strongly feel that in order to compete with the other manufacturers / exporters of the country, the State Govt. should provide ‘Special Status’ to this project and supply electricity at the same rate as DVC is supplying to Asansol Industrial area.