73% capacity utilization reflects sustained economic activity
The future investment outlook also looks steady, with over 50% of respondents indicating plans for investments and expansions in the next six months, according to FICCI’s latest Quarterly Survey on Manufacturing (QSM).
The companies face challenges related to the availability of raw materials and their escalating prices, uncertainty in global demand, shortage of skilled labor, market volatility, increased power costs, unutilized capacities, and high bank interest rates. These are some of the major constraints that are affecting expansion plans of the respondents.
The existing average capacity utilization in manufacturing is around 73%, which reflects sustained economic activity in the sector, which is more or less same as reported in previous surveys.
About 31% QSM respondents reported higher exports in Q3 2023-24. Furthermore, over 40% of the respondents expect their exports to be higher in Q4 2023-24 as compared to the previous year’s similar quarters.
The hiring outlook remains stable as close to 40% of the respondents are looking at hiring additional workforce in the next three months.
The manufacturers paid an average of 9.3% interest rate. A little under 45% of the respondents reported that the increase in repo rates in the last few months has led to a slight increase in the lending rate by their banks, thereby increasing their cost of borrowing. Close to 90% of respondents reported sufficient availability of funds from banks for working capital or long-term capital.
The QSM, which is the 61st edition of the survey, also revealed a sustained and continued period of growth for India’s manufacturing sector in the last two quarters of FY 2024.
Compared to the previous quarter, Q3 FY 24, when 73% respondents had reported higher production levels, in the current Q4 FY 2024, around 87% respondents expect either higher or same level of production.
“This upbeat assessment of India’s manufacturing is also reflected in higher order books. 85% of the respondents in Q4 FY 2024 are expecting higher number of orders compared to the previous quarter,” FICCI said in a release on 12 Feb 2024.
“Domestic demand conditions show optimism in the current Q4 2024.”
Sentiments of 10 major sectors were assessed by the QSM for Q4 2023-24. These were Automotive & Auto Components, Capital Goods & Construction Equipment, Chemicals, Fertilizers and Pharmaceuticals, Electronics & Electricals, FMCG, Machine Tools, Metal & Metal Products, Paper & Paper Products, Textiles, Apparels & Technical Textiles.
Over 400 manufacturing units from both large and SME segments, with a combined annual turnover of over Rs.3.4 lakh crores, responded to the survey.
Production cost seems to have increased for manufacturers in Q3 2023-24. The cost of production as a percentage of sales for manufacturers in the QSM has risen for 67% respondents, which is slightly more than which was reported in the survey for previous quarter.
Increase in price of raw material, utilities, labour cost, freight charges, increase in borrowing cost due to high interest rate and supply chain disruption have been the main contributors to increasing cost of production. Other factors responsible for escalating production costs include high cost of carrying inventory, etc.
Many sectors have sufficient labor force engaged in their operations and are not facing shortage of labor at factories. 62% of the respondents mentioned that they do not have any issues with workforce availability, the remaining 38% feel that there is still a lack of skilled workforce in their sectors, according to QSM. Fiinews.com
