Govt should reduce interest rates, energy costs to protect SME forging units, says Babu Rao, president, AIFI

Immoderate increase in energy costs on the back of rising fuel oil prices and power tariff increases over the last year amid deteriorating value of domestic currency is one of the  challenges among various currently faced by SME forging units, as explored by M Babu Rao, president of Association of Indian Forging Industry (AIFI) who is also the MD of GSB Forge Pvt Ltd, in an exclusive interview.

 

What is the role that Association of Indian Forging Industry (AIFI) aims to play in India's SME sector?

 

M Babu Rao: Since over 80% of the members of the AIFI are SMEs, supplying mainly to the automotive sector, the Association plays a pivotal role in updating and guiding the members on the latest developments and meeting the challenges to the industry on the cost and market fronts. 

 

 

 

The Association also enables interaction of the members with members of various international forging associations by hosting and mounting delegations to International Forging and Asian Forging Congresses being held periodically in various countries.

 

 

 

AIFI recently had the distinction of hosting the largest ever International Forging Congress IFC 2011 in Hyderabad with a record participation of over 1000 delegates and presentation of  66 technical papers besides an exhibition of the equipment manufacturers showcasing the latest technology.

 

 

 

What are the current projects being undertaken by AIFI?

 

M Babu Rao: Currently AIFI has initiated an “Energy Audit” programme for the benefit of the SMEs to tackle the problem of increasing energy costs in the sector. The programme is being funded by the “World Bank” and conducted by the BEE-GIZ for the Pune Forging Cluster of SMEs. The project has established the energy saving potential for the SMEs in the region, free of cost to the units.

 

 

 

The Association has also initiated steps to make an instructional video film to create awareness of the Indian Forging Industry among the students and teachers of Engineering Colleges with the help of the Government of India funded agency NITTTR.

 

 

 

In your opinion what are the key challenges that small-scale forging units face today. Please do provide some solutions to overcome the challenges.

 

 

 

M Babu Rao: The key challenges faced by the SME forging units are: a) Abnormal increase in energy costs due to balooning fuel oil prices and power tariff increases over the last year, following devaluation of the rupee

 

b) High interest rates affecting up gradation

 

c) Cyclical recessionary trends in the auto sector

 

d) Shortage of trained / skilled manpower

 

Government needs to intervene and prevent abnormal variations of fuel and power prices by suitably adjusting the taxes and duties on fuel oils and take steps to strengthen the power sector so that chronic shortages in the south and west of the country are overcome. Interest rates for the SMEs need to be brought down.

 

 

 

How the low-cost imported Chinese products are hurting the profit margins of small-scale forging units?

 

M Babu Rao: The bogey of low cost imported Chinese products is being used by OEMs in the country to deny genuine cost increases in the forging sector thereby hurting the financials of the SMEs in the sector.

 

 

 

In the wake of slowdown in auto industry, the domestic forging industry is turning its focus to alternative markets. What do you think, the diversification into other segments would be able to contribute in the revenues of forging industry?

 

M Babu Rao: The auto sector has traditionally been the largest consumer of forgings – 60 to 70%. However the cyclical variations in the demand of this sector has prompted the forging industry to gradually decrease its over-dependence on the auto sector and diversify to new & emerging sectors like Energy, Oil & Gas, Aerospace, Power, Defence and Heavy Engineering. Over the next few years, it is expected that these sectors will contribute to over 50% of the market for forgings.

 

 

 

Is the imposition of stringent anti-dumping laws and more tariff barriers on Chinese goods the need of the hour?

M Babu Rao: Yes, to protect the SMEs in the sector.

 

 

 

In your opinion, what measures should government take over the to promote India's forging industry?

 

M Babu Rao: Since the forging industry is both capital intensive and energy-intensive, Government should initiate steps to protect the industry SMEs by suitably cushioning the interest rates and energy costs against abnormal increases as has happened in the last 2 years. Inflation and devaluation of the rupee, which have aggravated the problems for the SMEs need corrective action from the government by way of reduction in duties and taxes and ushering in of GST at the earliest.

 

 

 

Kindly share the roadmap of AIFI for the ongoing financial year 2012-13.

 

M Babu Rao: In the current financial year 2012-13, AIFI intends to sensitise its members to the challenges being faced in the current recessionary scenario by conducting programmes for up gradation  in design / quality / technology and energy conservation besides laying emphasis on IT / CAD / CAM an other forms of computer based technologies to produce quality based forgings confronting to international standards with best yields, reduction in rejections & plant inventory & prompt deliveries to further the confidence of the customers.

 

 

 

Being the president of AIFI, what is your vision for this association for next coming years?

 

M Babu Rao: My vision for the AIFI is to strengthen the membership through interaction with members in all the regions of the country and unitedly work to contribute to the manufacturing / industrial growth of the country through innovative product & process development for the engineering sectors in general and automotive sector in particular.