Manufacturing sector growth to sustain in months to come: FICCI survey

New Delhi [India], November 7 : The growth momentum picked up by the manufacturing sector in the last few months is likely to be sustained for the next six-to-nine months, Quarterly Survey on Manufacturing conducted by industry body FICCI revealed.
The latest Survey reveals that after experiencing a revival of the Indian economy in the FY 2021-22, the momentum of growth continued in subsequent quarters of Q1 (April-June 2022-23) and Q2 July-Sept (2022-23) with over 61 per cent of respondents reported higher production levels in Q2 (July-September 2022-23).
This is significantly more than the percentage of respondents experiencing higher growth in Q2 of the last few years including pre-Covid years too. This assessment is also reflected in order books as 54 per cent of the respondents in Q2 (July-September 2022-23) that had a higher number of orders.
FICCI assessed the sentiments of manufacturers for Q2 July-September (2022-23) for ten major sectors namely Automotive and Auto Components, Capital Goods, Cement, Chemicals Fertilizers and Pharmaceuticals, Electronics, Machine Tools, Metal and Metal Products, Paper Products, Textiles, Textile Machinery and Miscellaneous. Responses have been drawn from over 300 manufacturing units from both large and SME segments with a combined annual turnover of over 2.8 lakh crores.
Capacity Addition and Utilization:
The existing average capacity utilization in manufacturing is over 70 per cent, which reflects sustained economic activity in the sector.
The future investment outlook also slightly improved as compared to the previous quarter as close to 40 per cent of respondents reported plans for capacity additions in the next six months, by as much as over 15 per cent on average.
Global economic uncertainty caused by the Russia-Ukraine War and increasing cases of various mutations of COVID virus worldwide have accentuated the volatilities impacting the major economies.
High raw material prices, increased cost of finance, cumbersome regulations, and clearances, shortage of working capital, high logistics cost due to rising fuel prices and blocked shipping lanes, low domestic and global demand, excess capacities due to the high volume of cheap imports into India, unstable market, high power tariff, shortage of skilled labor, highly volatile prices of certain metals, etc. and other supply chain disruptions are some of the major constraints which are affecting expansion plans of the respondents.
Inventories:
Over 87 per cent of the respondents had either more or the same level of inventory in Q2 July-September 2022-23, which is the same as compared to that of the previous quarter, where around 86.19 per cent of respondents expected either more or the same level of inventory.
Exports:
The outlook for exports seems to be positive as over 42 per cent of the respondents expect a high increase in exports in Q2 2022-23 as compared to the Q2 July-September of FY 2021-22.
Hiring:
Hiring though positive remains below potential as 36 per cent of the respondents in Q2 2022-23 were looking at hiring additional workforce in the next three months.
Interest Rate:
Overall, the average interest rate paid by the manufacturers has decreased to 8.37 per cent per annum as against 9.3 per cent during the last quarter and the highest rate at which loan has been raised is 13.5 per cent. High lending rates were reported by around 62 per cent of the respondents.
Production Cost:
The cost of production as a percentage of sales for manufacturers in the survey has risen for 94 per cent of respondents in the quarter. Reduced availability and high raw material prices especially that of steel, increased transportation, logistics, and freight cost, and a rise in the prices of crude oil and fuel have been the main contributors to the increasing cost of production.
Other factors responsible for escalating production costs include enhanced labor costs, high cost of carrying inventory, and fluctuation in the foreign exchange rate.
Workforce Availability:
Most sectors have a sufficient labour force engaged in their operations and are not facing a shortage of labour at factories. While 81 per cent of the respondents mentioned that they do not have any issues with workforce availability, and the remaining 19 per cent feel that there is still a lack of skilled workforce available in their sector.