Sharp rise in sentiment on economy, but concerns remain: Study

55% of those surveyed are planning to undertake major investments in the coming 12 months

The Manufacturing Barometer for 2014, a study jointly carried out by industry body Ficci and PricewaterhouseCoopers reveals growing optimism about India’s economy. According to the study, 94 per cent of those surveyed describe themselves as somewhat or very optimistic about the Indian economy. With “a more conducive economic and political environment”, 55 per cent of those surveyed are planning to undertake major investments in the coming 12 months.

Surprisingly, 61 per cent of those surveyed said their costs had in fact increased in the past six months —  a sharp contrast to the recent moderation in inflation. While the report argues that “the impact of reducing energy and commodity prices does not appear to have been felt yet by the manufacturing sector”, the high number could also be because, as the survey was carried out between the months of July and November, some responses would have been obtained before the recent fall in commodity prices.

Nearly half the companies surveyed expect margins to improve, on account of a compression in costs. But the worrying part of the survey is that only 35 per cent plan to add full-time equivalent employees. Instead, companies are planning to invest in new products, capacity additions and market expansion.

With labour costs in China rising, the report points out that there is an “unparalleled opportunity for India to step into the breach and capture a significant share of the global manufacturing pie”. While the prime minister has firmly stated his intent to transform India into a global manufacturing hub, challenges exist. India scores badly on the ease of doing business parameter, infrastructure remains inadequate and problems exist with land acquisition, labour laws and taxation, all of which increase costs for industry.