Published On: Wed, Dec 7th, 2016

Impact of Demonetization on the Forging Industry

Commenting on the government’s demonetization initiative Mr. Muralishankar Sambasivam, Vice President, Association of Indian Forging Industry, said, “From the long term perspective it is definitely a positive move by the government in the right direction. There will be huge cash inflows into the banking system resulting in enormous cash reserves, which will subsequently enable banks to fund both industry and infrastructure projects sufficiently. This will also see banks offering lower rate of interests to consumers which in-turn will result in increased investments in real estate and automobiles sectors. In the long run with the anticipation of introduction of GST and the positive impact of demonization, things should pick up from the first quarter of 2017 fiscal year.”

However, during the transition phase the industry will see some amount of stagnation due to sudden demonetization. Elaborating further on the short term impact, Mr. Muralishankar added, “With the decision to scrap the legal tender of Rs 500 and Rs 1,000 notes could impact vehicle sales in the rural markets. During November, the two-wheeler segment, where rural demand plays a major role, sales have fallen 25-30%, while in trucks, retail sales are down 40-50%. Also uncertainty over cash supply will definitely water down the positive impact which was anticipated of good monsoon this year.”

As per industry experts, all segments are likely to post a decline in November sales, which may potentially shave off as much as 2% from the annual growth. Industry feels that while the impact would obviously be more in the short term, however, the flushing out of unaccounted cash from the system is going to have a positive impact in the medium to long-term.