The small scale industries (SSI) in the engineering sector in the country have been severely hit by the rupee appreciation, with units losing about Rs 5 a dollar on export orders. Unlike larger units, which are not so badly off with losses on exports offset by imports of engineering components and raw materials, SSI sales are balanced towards exports increasing the impact.

Currently 13,000 engineering exporters are members of the Engineering Export Promotion Council in the country of which over 70 percent are SSI units. Last year, the sector collectively accounted for exports worth $ 26 billion with South India contributing 18 percent.

While the South notched a growth rate of 43.68 percent in engineering exports last fiscal, the all India growth rate stood at 36 percent. In FY08, a target of $31.2 billion has been visualised but with dollar depreciation casting a cloud, the target has been downsized to $ 30 billion with the growth rate reduced to 18 to 19 percent. This means fewer orders for the sector as well as decreased margins.

While earlier, profit margins of 10 to 15 percent were the norm, now the sector faced a drop in margins by 10 to 12 percent. Industry sources told Express that the most affected industries were forgings, castings, stainless steel utensils and packaging material with 10 to 12 percent dip in 'Free on Board' price.

Antony Lobo, General Manager-Exports, Ashok Leyland Ltd (ALL) said the operating margins for the auto majors had become slimmer since auto majors were importing auto components like gear boxes, parts of chassis and so losses were balanced.

Moreover, ALL is cost cutting on purchases from vendors and focusing on domestic sales. While there have been no reports of SSI units closing down, about 6 to 7 percent of the SSIs do not have any export orders.

However, the silver lining has been the presence of only 2 major players - India and China - spearheading engineering exports in the world and with demand for Indian engineering exports to China increasing from $ 727.12 million in 2005-06 to $ 1,288.75 million in FY’07, due to better quality and competitiveness in the global market, India is definitely tipped to be the leader in this field despite the rising rupee.

Mr. Divya Aggarwal

Money Management Consultants Ltd

Senior Copy Editor, Money Management Consultants Ltd
New Delhi, India

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