Manufacturing gaining lost momentum in Q-4, says FICCI survey
The future investment outlook looks slightly better as 30% respondents to a FICCI manufacturing sector survey in the Q4 reported plans for capacity additions for the next six months as compared to 18% responses recorded in the previous quarter survey.
The manufacturing sector is expected to regain the lost momentum in the Q-4, following responses to FICCI’s latest quarterly survey that had assessed the sector’s recovery during Q-3 (October-December 2020-21).
The percentage of respondents reporting higher production in third quarter of 2020-21 had increased vis-a-vis the Q-2 of 2020-21. The proportion of respondents reporting higher output during October-December 2020 rose to 33%, as compared to 24% in Q-2 of 2020-21. The percentage of respondents expecting low or same production is 67% in Q-3 2020-21 which was 74% in Q-2 2020-21, FICCI said in a release on 22 Mar 2021.
FICCI’s latest quarterly survey assessed the performance of manufacturers for Q-3 (October-December 2020-21) and the sentiments for the next quarter (Q-4) for 12 major sectors namely automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics & electricals, leather and footwear, medical devices, metal & 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 around Rs.5.3 lakh crore.
The overall capacity utilization in manufacturing has witnessed a rise to 74% as compared to 65% in previous quarter.
High raw material prices, high cost of finance, shortage of skilled labor and working capital, high logistics cost, low domestic and global demand due to imposition of lockdown across all countries to contain spread of coronavirus, excess capacities due to high volume of cheap imports into India, lack of financial assistance, uncertain demand scenario across globe, complex procedures for obtaining environmental clearances, high power tariff, are some of the major constraints which are affecting expansion plans of the respondents.
The survey recorded 78% of respondents had either more or same level of inventory in October-December, whereas around 79% of the respondents maintained either more or same level of inventory in July-September 2020 quarter of 2020-21.
The percentage of respondents expecting increase in exports has increased substantially to 29% when compared to previous quarters during lockdown period, wherein 24% respondents were expecting a rise in exports. Also, 34% are expecting exports to continue to be on same path as that of same quarter last year.
Hiring outlook for the sector seems to be improving, as 37% against 20% in previous quarter are planning to hire additional workforce.
Average interest rate paid by the manufacturers has increased slightly to 9.5% p.a. as against 9.2% p.a. during last quarter. The recent cuts in repo rate by RBI has not led to a consequential reduction in the lending rate as reported by 55% of the respondents.
Based on expectations in different sectors, sectors such as Medical Devices, Chemicals, Fertilizers & Pharmaceuticals, Textile Machinery, Electronics & Electricals, Capital Goods and Metal and Metal Products are likely to register strong growth in Q-3 2020-21.
The cost of production as a percentage of sales for manufacturers in the survey has risen for 63% respondents. Industry respondents have attributed the hike in productions costs primarily to high fixed costs, higher overhead costs for ensuring safety protocols, drastic reduction in volumes due to lockdown, lower capacity utilization, high freight charges and other logistic costs, increased cost of raw materials, power cost, high manpower costs, energy costs, rupee depreciation and high interest rates.
While not all sectors indicated a change in their input sourcing strategies but there are plans to shift the sourcing of inputs away from single country in certain areas.
Two-third of respondents indicated that they are planning to change their raw material and input sourcing strategies. #exports #manufacturing #investment #economy /fiinews.com
