Capacity Utilization rises from 75% to 80%
The Federation of Indian Chambers of Commerce and Industry’s (FICCI) latest ‘Quarterly Survey on Manufacturing’ highlights a continued positive sentiment for manufacturing sector in Q4 of 2018-19.
Overall sentiment in the manufacturing sector remains positive as the proportion of respondents reporting higher output growth (around 54%) during the January-March 2018-19 has remained same as compared to Q-3 of 2018-19, noted FICCI Survey, released 12 May 2019.
First time in last many quarters, the overall capacity utilization in manufacturing has witnessed an increase to 80% in Q-4 2018-19. It was hovering at 75% for last many quarters, as per the survey.
On hiring front, the outlook for the sector seems to have slightly improved for near future. While in Q-4 of 2017-18, 70% respondents mentioned that they were not likely to hire additional workforce, this percentage has come down to 62.5% for Q-4 of 2018-19.
Going forward it is expected that hiring scenario will improve further. 37.5% in Q-4 of 2018-19 as compared to 30% in Q-4 of 2017-18 are looking at hiring more people now, noted the Survey.
FICCI’s latest quarterly survey assessed the sentiments of manufacturers for Q-4 (January-March 2018-19) for twelve major sectors namely automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics & electricals, leather and footwear, metal & metal products, paper products, textiles, textile machinery, tyre 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 3.56 lakh crore.
In terms of order books, 44% of the respondents in January-March 2019 are expecting higher number of orders against 43% in October-December 2018-19.
Production Cost
The cost of production as a percentage of sales for manufacturers in the survey has risen for 72% respondents. This, of course, is significantly higher than the percentage of 62% for previous year. This is primarily due to increased cost of raw materials, wages, power cost, rising crude oil prices, increase in finance cost and rupee depreciation.
Capacity Addition & Utilization
The overall capacity utilization in manufacturing has witnessed a slight increase to 80% in Q-4 2018-19. The average capacity utilization for the manufacturing sector in the last few quarters has been around 75% only as per the survey.
The future investment outlook, though moderate, is slightly better than that was perceived in Q-4 of 2017-18. 40% respondents reported plans for capacity additions for the next six months as compared to 47% in Q-3 of 2018-19.
High raw material prices, high cost of finance, uncertainty of demand, shortage of skilled labor, high imports, requirement of technology upgradation, low domestic and global demand, excess capacities, delay in disbursements of state and central subsidies and competing countries such as Bangladesh and Vietnam enjoying lower wage cost and export benefits resulting in erosion of competitiveness of Indian exporters are some of the major constraints which are affecting expansion plans of the respondents.
In all the sectors covered in the survey namely Automotive, Capital Goods, Cement and Ceramics, Chemicals, Fertilizers and Pharmaceuticals, Electronics & Electricals, Leather and Footwear, Metals & Metal Products, Paper Products, Textiles and Textiles Machinery average capacity utilization has either increased or remained almost same in Q-4 of 2018-19 as compared to Q-3 2018-19.
Inventories
89% of the respondents maintained either more or same level of inventory, which is more as compared to 86% in the previous quarter and slightly less than 89.5% as was the case in Q-4 of 2017-18. This has been largely due to subdued domestic and export demand.
Exports
The outlook for exports is somewhat positive as 42% of the participants are expecting a rise in exports for Q-4 2018-19 and 33% are expecting exports to continue to be on same path as that of same quarter last year.
However, rupee depreciation has not led to any significant increase in exports as 76% of the respondents reported that the exports were not affected much by rupee depreciation. Thereby, emphasizing that there were other global factors that are restricting the growth of our exports.
Interest Rate
Average interest rate paid by the manufacturers has slightly decreased to 10.3% against 10.6% p.a. during last quarter but the highest rate remain as high as 15%. The recent cut in repo rate by RBI shall come as a relief for the industry and it expects more reduction in the rates in coming months to drive investments.
Sectoral Growth
Based on expectations in different sectors, it is noted that sectors like textiles and cement are likely to have strong growth in Q-4, whereas most other sectors are likely to have either moderate or low growth. fiinews.com
