FICCI's manufacturing survey says momentum of growth has continued for domestic economy

With growth expected to continue for Indian manufacturing sector in Jan-March Q-4 2022-23, there are signs that cost pressure witnessed in the last many months seems to be softening a bit for the sector, notes latest FICCI Manufacturing Survey. FICCI's latest quarterly survey on Manufacturing reveals that after experiencing revival of Indian economy in the FY 2021-22, momentum of growth has continued for the subsequent quarters of FY 2022-23 with some temporary effect of global slowdown on Indian manufacturing. In the Q3 Oct-Dec FY 2022-23, 58% of the respondents reported higher production levels. Growth outlook continues, though lower sequentially. Further, around 50% of the respondents expect a higher level of production in Q4 Jan-Mar 2022-23 with an average increase in production in double digits. This assessment is also reflective in order books as 52% of the respondents in Q-3 Oct-Dec 2022-23 have had higher number of orders and demand conditions continue to be optimistic in Q-4 too.

There seems to be some softening of cost pressures on manufacturers in Q-4 note FICCI survey. The cost of production as a percentage of sales for manufacturers in the survey has risen for 73% respondents, which is lower than 94% as reported in previous survey. The existing average capacity utilization in manufacturing is around 75% which reflects a sustained economic activity in the sector. In fact, this is more than 70% capacity utilization reported for previous survey. The future investment outlook has also improved as compared to previous quarter as over 47% respondents reported plans for investments and expansions in the coming six months. This is also an improvement over the previous survey where only 40% reported plans for investments in next six months.

 

However, global economic uncertainty caused by the Russia-Ukraine war and increasing cases of various mutations of COVID virus in other countries continue added to volatilities in supply chain and demand. Increased cost of finance, cumbersome regulations and clearances, high logistics cost due to high fuel prices, low global demand, high volume of cheap imports into India, shortage of skilled labor, highly volatile prices of certain metals etc. and other supply chain disruptions are some of the major constraints which are affecting expansion plans of the respondents.

87% of the respondents had either more or same level of inventory in Q-3 Oct-December 2022-23, which is equivalent to that of the previous quarter. In Q-4 Jan-March 2022-23, about 90% of the respondents are expecting higher or same level of inventory. The outlook for exports seems to be waning as about 36% of the respondents reported higher exports in Q-3 Oct-Dec 2022-23 as compared to the Q3 Oct-Dec of FY 2021-22. Furthermore, only about 30% of the respondents expect their exports to be higher in Q4 Jan-Mar 2022-23 as compared to Q4 Jan-Mar 2021-22. Hiring outlook though positive remains below potential as only 32% of the respondents were looking at hiring additional workforce in the next three months.

Average interest rate paid by the manufacturers has increased to 9.38% p.a. as against 8.37% p.a. during last quarter and the highest rate at which loan has been raised is 15% p.a. Over 71% of the respondents have reported that increase in repo rates in the last few months has led to a consequential increase in the lending rate by their banks, thereby increasing their cost of borrowing. Based on expectations, Auto, Capital Goods, Cement, Electronics & Petrochemicals & Fertilizers sectors are poised to see a strong growth. Rest all the sectors are expected to register moderate to low growth in Q-4 2022-23.

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