Need Rs. 13.5K CroreInvestment to Maintain Growth - PDF document

Need Rs. 13.5K CroreInvestment to Maintain Growth Indian Foundry Sector The Indian foundry industry has, not only survived the recent downturn but also as any basic industry geared up to face the challenges of the post-recession period. In fact, the industry serves as a model for other durable goods manufacturers. In a new economic environment, this traditional industry has restructured itself to maintain profitability and growth pread in a handful of well-established locations next to Smajor auto hubs, Indian foundry industry follows the speed of auto sector growth which is advancing rapidly with innovations of new models on frequent intervals. Hence, much of the $19 billion cast component industry in India depends on the progress of auto sector. In the past few years, the foundry industry has been growing with a single digit recording 6.1 per cent in 2008-09. Experts believe that the year 2009-10 remained a remarkable year with growth surged to nearly 10 per cent. OverviewThe Indian foundry industry produces around 7 million tonnes of castings employing an estimated 0.5 million directly and another 1.5 million indirectly drawn mainly from socially and economically weaker sections of society. Therefore, the growth of foundry industry is very important for inclusive and overall economic growth. According to Goldman Sachs, in 2059, India is expected to be the third largest economy (by GDP) in the world, along with China (No 1) and the US (No 2). The automotive sector accounts for 4.2 percent of India's GDP. Since 2002, production volume Focus 32 February 2011 has a 16 percent compound and annual growth rate (CAGR). Economists believe India has the potential to own up to 7 percent of the auto components market in the world. Around 32 percent output of foundry industry goes to auto industries and the remaining to other downstream engineering sector.The Automotive Mission Plan (AMP) 2006-2016 envisages four-fold growth by 2016 i.e. from $34 to $122-160 billion industry and employing about 25 million by 2016 which is sustainable only by corresponding growth in the foundry industry as it is the key metal casting components feeder to practically all segments of industry, auto being the major consumer of castings. AMP 2006-16 is expected to drive demand of castings phenomenally. The Indian foundry industry is ranked 4th globally as per the world casting census conducted by Modern Castings, USA.The castings export from industry exports castings worth $1.5 billion. It is the key feeder industry to automobiles, auto-components, railways, electric TOP TEN CASTING PRODUCERS Output (million tonnes) machinery and power generation, cement, textiles, sugar machinery, machine tools, engineering and export sector. The industry consists of around 5,000 units, 90 per cent being in small Need for Technological Up-gradationThere is a still lot need to be done. Even with these improvements the export of castings from India amounted to only one percent of the world requirement. In the near future there will be ample scope for the Indian foundry industry to forge strategic alliances with their counterparts in the developed countries which are on the verge of closure primarily due to three major reasons: waste disposal and highly stringent pollution control regulations, high manpower costs, and acute shortage of trained personnel to in foundries.This is where Indian foundries can make their presence felt in the international market by approaching foreign foundries to source castings from India at more economical prices and thus enhance their market share. In order to do this, Indian foundries have equip themselves with the latest technologies such as automation, casting simulation etc. Indian foundry industries cannot afford to ignore environmental implications which will also become stringent in terms of implementation of compliance. The industries also have to strive to adopt eco-friendly technologies. In this direction TIFAC has contributed significantly by promoting development of eco-friendly melting furnace, which are fired by LD oil or gas and the emissions are virtually pollution free. This technology has been developed by NML Jamshedpur, and is currently under implementation in the foundries of Agra.ExportsBased on the data compiled from the data provided by DGCIS, there has been a steep surge in import of castings especially from China. It is observed that the surge in imports varies from 100–2000 percent in various components due to low Country China USA Russia India Germany Japan Brazil Italy France Korea 33.5 10.8 7.8 7 5.8 5.7 3.4 2.6 2.4 2.1 In the near future there will be ample scope for the Indian foundry industry to forge strategic alliances with their counterparts in the developed countries which are on the verge of closure primarily due to three major reasons: waste disposal and highly stringent pollution control regulations, high manpower costs, and acute shortage of trained personnel to work in foundries. prices which are well below the manufacturing costs in India as most of the units are very small in India and do not have the benefit of economy of scale threatening the existence of several small and medium foundry units and loss of jobs in this key segment.Auto IndustryThe Indian automobile industry is the seventh largest in the world with an annual production of over 2.6 million units in 2009. In 2009, India emerged as Asia's fourth largest exporter of automobiles, behind Japan, South Korea and Thailand. By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation's roads. India has emerged as one of the world's largest manufacturers of small cars. According to reports, India's strong engineering base and expertise in the manufacturing of low-cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of several automobile companies like Hyundai Motors, Nissan, Toyota, Volkswagen and Suzuki. Various world automobile giants have set their feet in India to capture immense untapped potential. In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011. Similarly, General Motors announced its plans to export about 50,000 cars manufactured in India by 2011. In September 2009, Ford Motors announced its plans to set up a plant in India with an annual capacity of 250,000 cars for US $500 million. The market and for export. The company said that the plant was a part of its plan to make India the hub for its global production business. Fiat also announced that it would source more than US $1 billion worth auto components from India. According to an estimate, in 2009 India surpassed China as Asia's fourth largest exporter of cars. AUTO PRODUCTION (No. millions) Car MUVs LCVs M&HCVs Tractor Scooter Motorcycle Moped 2007-08 1.52 0.25 0.25 0.29 0.35 1.07 6.50 0.43 2008-09 1.52 0.22 0.22 0.19 0.34 1.16 6.80 0.44 2009-10 1.93 0.27 0.32 0.25 0.43 1.49 8.44 0.57 ChallengesThe industry, however, faces some hurdles. Along with a lack of sufficient infrastructure, raw material costs are higher in India than in developed countries. Therefore, despite being the largest producer of ferrous and non-ferrous castings, the Indian foundry industry is losing its competitiveness to other countries due to high manufacturing cost. The Indian foundry sector is currently reeling under the lack of certainty on environment clearance standards, infrastructural blocks and energy shortage which is pushing cost of casting products up. This is the biggest disadvantage for foundry sector in India. As a consequence, a couple of big projects were now slipping out as there were no set standards for environmental clearances in India. “The industry should have clear laws and environmental safeguard standards; and there is an urgent need to initiate dialogue with the government to sort out this issue,” said Kevin R. Thieneman, Managing Director and Country Manager, Caterpillar. The industry, however, faces some hurdles. Along with a lack of sufficient infrastructure, raw material costs are higher in India than in developed countries. Therefore, despite being the largest producer of ferrous and non-ferrous castings, the Indian foundry industry is losing its competitiveness to other countries due to high manufacturing cost. Focus 34 February 2011 On account of these concerns, the country which is in the race to occupy third position (as the largest producer of castings) among the foundry industries in the world would probably lose out if the infrastructural issues are not addressed. Since 2003, the steep increase in cost of raw materials and energy has resulted in the closure of approx. 500 units. Overall India is exporter of Pig Iron but must import Scrap metals and Coke etc. Cost recovery for material and energy is very difficult as most contracts are long term contracts with out any clause for price adjustment. India has to import coke & scrap. Moulding sand is locally available & India has an advantage on this account. Energy cost typically varies between 12-15 percent. Energy is a major issue in Tamil Nadu. Most foundries are operating at just 50 per cent of their capacity because of power shortage. Apart from power and idle capacities adding to the production cost, the foundry industry is unable to attract workforce. Most youngsters prefer white-collared jobs. It is, therefore, becoming a Herculean task for the foundry industry to train and retain skilled workforce. The Caterpillar chief pointed out that skill building would become an important issue for the Indian foundry industry in the coming years. Industry sources said that new players had reservations in entering this space.The Way ForwardDue to the growing expectations of OEMs regarding the quality and quantity of castings, India is expected to produce larger casting facilities over the next few years. The size and scope of large plants are required to address investment requirements, power shortages and a talent crunch. This means that manufacturers with latest technology of equipments and raw materials will have a bright opportunity in India. The foundry sector in India would need around $3 billion in investment to meet the demand of growing domestic industry and strong export drive. Following the economic reforms the government has reduced tariffs on imported capital goods as a result the annual average amount of FDI is reported to have increased but is still one tenth of the annual FDI in China. The reforms also encourage the privatization of industry enabling foreign companies to invest or enter into joint ventures with Indian Foundries. FDI projects are permitted an automatic approval process.Several International corporate from USA, EU and East Asian Countries have increased overseas foundry operations in India i.e. Volvo foundries in Chennai and Suzuki in Haryana. Sundaram Clayton has joined hands with Cummins. Hundai Motors, Delphi. Ford India, Tata-Cummins, GM and Ford have contracts of foundry SECTORWISE CONSUMPTION (% of Total Production) % Age 32.36 8.11 2.07 4.8 3.15 3.16 8.57 2.75 1.93 7.77 5.22 0.55 4.1 6.65 8.81 Particulars Automobile Agriculture Earthmoving Pumps & compressor Valves Diesel Engines Sanitary Electrical equipment Machine tools Pipe & fittings Railways Defence Power generation Industries machinery Others The foundry sector in India would need around $3 billion in investment to meet the demand of growing domestic industry and strong export drive. Following the economic reforms the government has reduced tariffs on imported capital goods as a result the annual average amount of FDI is reported to have increased but is still one tenth of the annual FDI in China.