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Export outlook weakens for Indian manufacturing

The export outlook has weakened and manufacturers seem unwilling to increase too much capacity even though inventory levels have improved. The result will be subdued hiring in the sector.

twitter-logo Goutam Das        Last Updated: September 7, 2015  | 11:44 IST
Export outlook weakens for Indian manufacturing
(Picture for representation purpose only. Source: Reuters)

Make in India is yet to gather any steam, going by industry body FICCI's quarterly survey on manufacturing in the country. The export outlook has weakened and manufacturers seem unwilling to increase too much capacity even though inventory levels have improved. The result will be subdued hiring in the sector.

The survey for the fiscal year's first quarter ending June polled 386 manufacturing units from 13 sectors, including textiles, capital goods, metals, chemicals, cement and ceramics, electronics, auto, leather and footwear, machine tools, food, tyre, paper and textiles machinery.

The survey found that an overwhelming majority of the respondents have no plans for capacity expansion-only 25 per cent reported plans for new investments in the next six months. In the quarter ending March 2015, 27 per cent said they would expand capacity. This is a reflection of poor demand conditions: Exports are weakening with only 33 per cent of the respondents reporting higher exports in the June quarter versus 45 per cent in March and 43 per cent in December.

Clearly, manufacturers are on a wait-and-watch mode. Expansion is being capped even as inventory levels indicate improvement compared to the previous quarter. Around 29 per cent in June reported that they are carrying more than their average inventory levels as compared to 33 per cent in March.

The impact of lower-than-expected capacity expansion in the next few months will reflect on the sector's hiring. Around 79 per cent of those polled said there weren't likely to hire additional workforce in next three months. This continues to be bad news for the BJP-led NDA government that was hoping the manufacturing sector to mop up millions in workforce.  

While falling demand in exports can pull down Indian manufacturing, FICCI listed two more issues that remained bottlenecks for Make in India-regulatory clearances and high cost of borrowing. Interest rates paid by the manufacturers in India ranges between 8.75 and 14.5 per cent as per the survey, with average interest rate at around 12.11 per cent per annum. About 50 per cent of manufacturers reported availing credit at over 12 per cent average interest rates.

 

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