Manufacturing accelerates in Q2, likely to sustain in FY24: Ficci study

57% respondents have plans for investments and expansion in the next six months

Growth in India’s manufacturing growth sector accelerated in the June-September quarter (Q2 ) and is likely to continue for the rest of the Financial Year 2023-24 (FY24) despite developed nations slowing down, said a survey by business chamber Ficci on Monday.

As many as 79 per cent respondents reported a higher production level in Q2 FY24 compared to the year-ago period, said the survey.

Ficci surveyed 380 manufacturing units covering large and small and medium enterprises (SME) with a combined annual turnover of over Rs 4.9 trillion in ten major sectors like automotive and auto components, capital goods, cement, and chemicals.

 

The average capacity utilisation in manufacturing was over 74 per cent in Q2 FY24, reflecting sustained economic activity in the sector. It is slightly higher than 73 per cent capacity utilisation reported in the previous quarters.

“The future investment outlook has also improved as compared to the previous quarter as over 57 per cent respondents reported plans for investments and expansions in the coming six months. This is also a slight improvement over the previous survey,” said the survey by Ficci, short for Federation of Indian Chambers of Commerce and Industry.

The survey said that electronics and white goods, cement, and automotive and machine tools displayed strong growth and are "clear outperformers", whereas sectors like capital goods and construction machinery, chemicals, textiles, metals, paper and other sectors had moderate growth.

More than 40 per cent respondents said demand is a significant constraint despite exports doing better than previous quarters. Over 48 per cent of respondents reported higher exports in Q2 as compared to 33 per cent in Q1. Other constraints were high raw material prices, increased cost of finance, logistics, and other supply chain disruptions.  

“Whether it is domestic demand or exports, this remains a major limiting factor. Further improvement in export demand is required in the light of the country's growth aspiration,” said the survey.

Around 38 per cent of the respondents are considering hiring additional workforce in the next three months, but 18 per cent of them feel that manufacturing lacks a skilled workforce.

As many as 58 per cent manufacturers said in Q2 the cost of production as a percentage of sales increased, compared to 77 per cent respondents saying the same for the previous quarter.

“Nonetheless, high raw material prices and high energy cost are the two main factors contributing to the high production costs,” said the survey.