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India’s manufacturing sector is at its lowest point in the last ten years with the share of manufacturing in overall GDP being the lowest in the last decade, a joint report has shown.
Slowdown in the domestic demand identified by 83% CXOs (top management) to have the biggest impact on the sector in the past 12 months, a manufacturing leadership survey conducted jointly by the Confederation of Indian Industry (CII) and Boston Consulting Group has shown.
Jamshyd Godrej, chairman and managing director, Godrej & Boyce Manufacturing said, “It is necessary for manufacturing companies to step back and filter out the structural trends effecting manufacturing from the noise of day-to-day fire-fighting. We believe that the context of manufacturing has changed. The new environment is characterized by shocks, swings and shortages”.
The manufacturing sector had played a robust role in driving GDP growth in the 2005-11 period, when it was growing at around 10% CAGR. However, since then, industry has posted an overall slump, with manufacturing GDP growth at 3% in FY12 and at around 1% in FY13.
The rupee depreciation has proved to be one of the biggest influential factors for companies. According to the survey 59% of CXOs believe that the rupee depreciation will improve the country’s manufacturing exports.
However, almost identical number of respondents identified rupee as having the most negative impact on their business – mainly due to margin pressure of increased cost base.
But several companies, especially car and two-wheeler manufacturing companies, are banking on rural demand to lift sales. India has witnessed one of the best monsoons in recent history. “As observed in the past, favourable monsoons have a positive impact on agricultural as well as overall GDP growth in the same and the subsequent year”, the report further stated.
Some of the positive off-shoots have been visible in the tractor industry. Mahindra & Mahindra, the country’s biggest tractor manufacturer, posted a 37% rise in tractor sales in September as against the same month last year.
At the same time two-wheeler sales, which fell during April-July 2013 over the previous year, bounced back in August and September, backed by strong rural demand. Similarly, FMCG companies like Dabur and ITC have posted strong growth in sales and profit margins, driven by rural demand.
Around 85% of CXOs expect manufacturing growth in the 5-7% range or lower if current external conditions were to continue. However, 70% of the respondents expect sector growth over the next five years to be greater than the last five years, the report said.
