Capacity utilitization over 70% reflects economic activity
The growth momentum picked up by manufacturing sector in the last few months is likely to be sustained for the next six to nine months, as assessed by latest FICCI Quarterly Survey on Manufacturing.
The survey on Manufacturing reveals that after experiencing revival of Indian economy in the FY 2021-22, momentum of growth continued in subsequent quarters of Q1 (April-June 2022-23) and Q-2 July-Sept (2022-23) with over 61% respondents reporting higher production levels in Q-2 (July-Sept 2022-23).
This is significantly more than the percentage of respondents experiencing higher growth in Q-2 of last few years including pre-covid years too. This assessment is also reflective in order books as 54% of the respondens in Q-2 (July-Sept 2022-23) had higher number of orders, FICCI said in a release on 7 Nov 2022.
The survey assessed the sentiments of manufacturers for Q-2 July-September (2022-23) for 10 major sectors — Automotive & Auto Components, Capital Goods, Cement, Chemicals Fertilizers and Pharmaceuticals, Electronics, Machine Tools, 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 over Rs.2.8 lakh crores.
Capacity Addition & Utilization
1. The existing average capacity utilization in manufacturing is over 70%, which reflects a sustained economic activity in the sector.
2. The future investment outlook also slightly improved as compared to previous quarter as close to 40% respondents reported plans for capacity additions in the next six months, by as much as over 15% on an average.
3. 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 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
87.32% of the respondents had either more or same level of inventory in Q-2 July-September 2022-23, which is same as compared to that of the previous quarter, where around 86.19% respondents expected either more or same level of inventory.
Exports
The outlook for exports seems to be positive as over 42% of the respondents expect a high increase in exports in Q-2 2022-23 as compared to the Q2 July-September of FY 2021-22.
Hiring
Hiring though positive, remains below potential as 36% of the respondents in Q-2 2022-23 were looking at hiring additional workforce in the next three months.
Interest Rate
Overall, average interest rate paid by the manufacturers has decreased to 8.37% p.a. as against 9.3% p.a. during last quarter and the highest rate at which loan has been raised is 13.5% p.a. High lending rates were reported by around 62% of the respondents.
Sectoral Growth
Based on expectations in different sectors, all sectors were expected to register moderate to strong growth in Q-2 2022-23.
Production Cost
The cost of production as a percentage of sales for manufacturers in the survey has risen for 94% respondents in the quarter. Reduced availability and high raw material prices especially that of steel, increased transportation, logistics and freight cost, and rise in the prices of crude oil and fuel have been the main contributors to 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 sufficient labor force engaged in their operations and are not facing shortage of labor at factories. While 81% of our respondents mentioned that they do not have any issues with workforce availability, the remaining 19% feel that there is still lack of skilled workforce available in their sector. fiinews.com
