Manufacturing sector to be impacted in FY23 as exports take a hit: Report

The Indian manufacturing sector, which received a fillip in FY22 due to export growth, is likely to be hit by a slump in foreign trade activity in FY23, a report said on Thursday.

An analysis of industrial output and merchandise exports by India Ratings and Research suggested that the "exuberance" witnessed in merchandise exports in FY22 helped the manufacturing segments.

"Surge in merchandise exports helped the manufacturing sector in FY22, but was not broad-based and may not sustain in FY23," the rating agency said.

The exports trend of FY22 may not sustain in FY23 due to the adverse impact of the Russian invasion of Ukraine, leading to recessionary concerns in the advanced economies, stringent COVID-19 control measures in China impacting production in various sub-sectors in India, and continued disruptions in global supply chain/trading sanctions imposed on Russia, it added.

The note said India's average annual merchandise exports during FY16-FY20 were USD 297.02 billion, having peaked at USD 330.08 billion in FY19. The same jumped to the highest-ever USD 421.89 billion in FY22.

"Since the pickup in merchandise exports has primarily been driven by the higher exports of manufactured goods, its spillover effect was expected to be visible in the higher capacity utilisation and an improvement in the industrial growth numbers in FY22," it said.

The agency said it mapped the merchandise trade data to the two-digit Index of Industrial Production, and disaggregated goods export data with the IIP.

"Even on the FY20 base with the exception of a few, most manufacturing segments recorded double-digit export volume growth. In fact, the export volume growth pattern across the different manufacturing segments was broadly similar both on the FY21 and FY20 base," Paras Jasrai, an analyst at the agency, said.

The agency said basic metals, textiles, pharmaceuticals and food products witnessed a robust rebound in export volumes in FY22 when compared to FY20 volume levels, suggesting that the production in these segments benefited from the buoyant export demand.

Textiles witnessed a sharp recovery both in exports and import volumes along with production, it said, adding that all these sectors have a share of 26.4 per cent in the overall industrial sector and formed 24.1 per cent of the merchandise exports in FY22.

On the other hand, the sectors which not only witnessed low growth in production levels but also low-to-moderate export volume growth in FY22 were railways locomotives, ships and aircraft, wearing apparel and leather products, among others.

Labour-intensive sectors such as wearing apparel and leather products have benefited from neither domestic nor external demand, it said, adding this does not augur well from the perspective of employment generation in the country.