India Inc’s capacity utilisation hit a three-year low in the first three months of this financial year due to slow growth of the domestic economy, according to the Reserve Bank of India’s Order Books, Inventory and Capacity Utilisation Survey.
The utilisation was at its lowest in 13 quarters in the April-June period, despite improvement in new order positions.
The year-on-year rise in these was, however, partly on account of a lower base.
“There is a strong co-movement between capacity utilisation and de-trended IIP (Index of Industrial Production) manufacturing...There was an increase in pending orders due to inability to fully meet the new orders,” RBI said in its second quarter review of macro-economic and monetary developments.
IIP growth decelerated sharply during April-August because of decline in capital goods production, reflecting a slowing investment cycle growth. Contraction of growth in the mining sector contributed.
The growth of eight core infrastructure industries decelerated to 2.8 per cent between April and August from 5.5 per cent in the corresponding period last year. The slowing in industrial activity was reflected across sectors.
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The central bank said revival of the investment cycle would hinge on resolution of policy uncertainties, particularly in sectors such as power and coal.
For instance, despite large new power capacities reaching gestation stage during the 11th five-year Plan, these capacities did not yield the desired results due to input supply constraints. While about 55 Gw of new capacity creation was achieved, a large part of the new capacity in thermal power was affected by coal shortages.
“To support revival in industrial growth, there is a need to take expeditious decisions to accelerate investments, especially by easing policy constraints and removing major supply bottlenecks,” RBI said.