Rising cost of raw material and slimming order books are dampening the growth of the country's manufacturing sector, which is expected to further slow down during the third quarter of the current fiscal, a Federation of Indian Chambers of Commerce and Industry (Ficci) survey said. "Ficci's latest quarterly survey on manufacturing projects continues to see moderation in growth for the sector.
This slowdown is a result of lower order books, moderate export growth and rising raw material costs," the chamber said in a release. According to the survey, 87 per cent of the 384 manufacturing units said they expect growth to moderate in the third quarter of financial year 2011-12 compared to the same period of 2010-11. The survey noted worsening demand conditions for the manufacturing sector in Q3 compared with previous quarters. A significant fall in order books is evident, it said. While in the last two quarters over 50 per cent and 38 per cent respondents reported higher orders, in Q3 only 29 per cent respondents reported higher order books.
Hiring sentiments too, were bleak with over 66 per cent participants saying they are not planning to hire in the next three months, it said. A significant fall in capacity utilisation is also expected during the quarter, the survey said. The capacity utilisation levels are particularly low in sectors like textiles, consumer electronics and electrical, it added. Only 32 per cent respondents said they are planning capacity addition. In the previous quarter, 41 per cent reported plans for capacity addition in the next six months.
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The survey also said the growth in manufacturing exports is expected to moderate in the third quarter. The slowdown is a result of moderation in consumer demand, rise in raw material prices and weakening of the export markets, Ficci pointed out. Output of the manufacturing sector, which constitutes over 75 per cent of the index of industrial production (IIP), grew only 2.1 per cent in September, compared to 6.9 per cent expansion achieved in the same month last year.
Based on expectations in different sectors, nine out of thirteen sectors were likely to witness low (less than five per cent) to moderate (between five and 10 per cent) growth in Q3, the survey pointed out. The sectors that are likely to witness low growth are cement, steel, textiles, chemicals, capital goods, paper and electricals.
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Sectors such as automotive, auto-components, leather and food processing are likely to witness strong growth of more than 10 per cent in Q3. Going forward, 56 per cent of respondents expect rising cost of raw materials to persist and pose a significant constraint.