A K Anand
The Narendra Modi government has completed three years in the office recently. These three years have been full of action. Lot of new initiatives have been taken for stimulating the growth of Indian economy and several social reforms have been initiated for inclusive growth.
GST, of course, has been under discussions for a long time, which is the biggest financial reform in the last few decades and now finally with sustained efforts of the present government, it will be implemented in coming months. As is expected with such changes, there will be initial challenges which will be overcome as the time passes. Institute of Indian Foundrymen (IIF) has already conducted a study with the help of Grant Thoronton to assess the possible impact on the current business models of foundries and share with the members to enable them to take informed decisions well in time and be GST ready. The foundry sector has also made some recommendations to government for consideration based on the study. Some of these have been accepted.
However, there are certain issues like electricity duty has not been subsumed which will continue to be a cost to energy intensive foundry sector. There is a liability for payment of GST on receipt of advance payments which is not there presently. ITC will be available subject to payment of taxes by the supplier and proper filing. There is not much clarity on export incentives yet thrust on digital payments and cashless economy is yet another initiative, which will help widen tax net and reduce taxes. The foundry sector has been promoting the use of digital payments amongst its members. We as a foundry body have already seen that taxes for MSMEs upto turnover of Rs 50 cr has been reduced from 30 to 25 per cent. This is a welcome step for MSMEs and especially the foundry industry as 90 per cent units fall under MSME category. Moreover 90 lakh new taxpayers have been added. This initiative is expected to reduce taxes as we go forward .
The thrust on infrastructure development, road construction, coal production, power generation, housing for all by 2022 have started driving the demand for castings from foundry industry. There is thrust on wind energy which uses castings. Recently, the government has announced investments of Rs 70,000 crore in nuclear power generation, which will need equipment and machinery using castings. The power situation has improved which is pre-requisite for manufacturing. However, power tariffs are very high due to inefficient generation and transmission and cross
subsidies and hurting the manufacturing sector especially the power intensive foundry industry where power costs vary between 15-20% of manufacturing cost affecting the global competitiveness of Indian foundry sector and manufacturing in general. There is need to plug loopholes in the open power access policy to support “Make in India”.
The focus on railway modernization and Defence manufacturing in India will also drive demand for castings Pradhan Mantri Gram Sadak Yojana (PMGSY) for rural road construction is another opportunity for Foundry industry to convert waste foundry sand to useful product for use in rural road construction as there is mandate to use minimum 15 per cent unconventional materials for rural roads. For this purpose, IIF has initiated a study which is technically supported by Central Road Research Institute and the findings will be available in next 6 -8 months. Discussions have also been held with National Rural road development Authority who have shown interest in the initiative of IIF.
The cost of environment, occupational health and safety are going up. These may vary between 7-10 per cent foundries have to factor in these costs and the clients will have to compensate these costs otherwise foundries will not be able to sustain which will lead to massive imports as countries like China are slowing down and the Chinese foundries will be under pressure to dump the castings as they have built huge capacities over last few decades.
The rising Indian rupee is causing hardships to foundry exporters. The industry was expecting INR to touch 70 to a USD. However, INR has strengthened from 68 to 64 which has caught the exporters unaware. Protectionism in major economies will also impact the exporters.
Regarding skill development, although the government is taking several initiatives but we feel there is an urgent need for modernisation of ITI near the clusters to suit the needs of particular foundry cluster.
The author is director, The Institute of Indian Foundrymen