FICCI's latest quarterly survey assessed the expectations of manufacturers for Q-1 (April - June 2017-18) for eleven major sectors namely auto, capital goods, cement and ceramics, chemicals and fertilizers, electronics & electricals, leather and footwear, machine tools, metal and metal products, paper products, textiles and technical textiles, and textiles machinery. Responses have been drawn from over 300 manufacturing units from both large and SME segments with a combined annual turnover of over ?3.5 lac crore.
However, the cause for worry was the rising cost of production (for a little over two-thirds of the respondents), the Survey noted. The cost of production as a percentage of sales for product for manufacturers in the survey has risen significantly as 69% respondents in Q-1 2017-18, against 60% respondents reported cost escalation in last quarter. This is primarily due to rise in minimum wages and raw material cost.
In terms of order books, about 47% respondents in April - June 2017-18 quarter reported higher order numbers which is almost the same as that recorded in the previous quarter.
Capacity Addition & Utilization
The average capacity utilization as reported in the survey for the manufacturing sector is about 75% for Q-4 2016-17 which is similar to that of Q-3 2016-17. The future investment outlook remains less optimistic. Even now, 74% respondents in Q-1 2017-18 as against 75% respondents in Q-4 2016-17 reported that they don't have any plans for capacity additions for the next six months. Although, the bleak investment outlook seems to be waning if Q-3 2016-17 is taken into consideration (when 77% respondents had no plans for capacity addition). High percentage implies slack in the private sector investments in manufacturing is here to continue for some more months. Large volumes of imports, under-utilised capacities and lower domestic demand from industrial sectors and OEMs are some of the major constraints which are affecting the expansion plans of the respondents.
On a broader perspective, in some sectors (like chemicals, capital goods, textiles machinery, cement, metals and paper) average capacity utilization has either remained same or declined in Q-4 of 2016-17. On the other side, some sectors including auto, textiles and electronics and electricals reported a rise in the average capacity utilization over the same period.
Inventories
As for the inventory levels, 87% of the participants in Q-4 (January - March 2016-17), as against an overwhelming 97% in Q-3 (October-December 2016), have maintained either more or same levels of inventory as their average inventory levels.
Exports
Export outlook of manufacturing sector for the first quarter of this fiscal also seems to be marginally improving as percentage of respondents expecting fall in Q-1 (2017-18) has come down from 22.8% in Q-4 (2016-17) to 18.5%.
Hiring
Hiring outlook for the sector remains subdued in near future as 73% of the sample participants in Q-1 2017-18 said that they are unlikely to hire additional workforce in next three months. However, when compared on a sequential basis, this proportion reflects a mild improvement over the previous quarter when 77% of the respondents were reportedly averse to hire additional workforce.
Interest Rate
Average interest rate paid by the manufacturers still remain high though have shown some sign of moderation with average rate of 11% but highest rates continue to be upwards of 14.5%.
Sectoral Growth
Based on expectations in different sectors, the Survey suggests that moderate growth is expected in metals, leather and footwear, machine tools and capital goods sector in Q-1 2017-18. Low growth is expected in sectors like chemicals, automotive, textiles and cement. Only in case of electronics and electricals high growth is expected for Q-1 2017-18.
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