FICCI survey sees mixed trend in manufacturing

Industry body FICCI's latest quarterly survey on the manufacturing sector has mixed news. While the industry is hoping for higher production, capacity utilisation remains average, exports haven't gained much despite the rupee's depreciation while hiring remains weak.

The quarterly survey assessed the sentiments of manufacturers for the September quarter of 2018 across twelve sectors - automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics & electricals, food products, leather and footwear, medical devices and technologies, metal & metal products, paper products, textiles machinery and textiles.

Here are four key findings:

• The proportion of respondents reporting higher output increased to 61 per cent in the September quarter from 49 per cent in the June quarter of 2018. In terms of order books, 57 per cent of the respondents in the September quarter are expecting higher orders versus 49 per cent in June 2018. This indicates a turnaround in demand.
• However, the optimism of higher production is not reflecting in higher capacity utilisation. The average capacity utilization for the manufacturing sector is about 77 per cent, similar to the previous quarter. The future investment outlook is moderate as well, the survey found, with only 45 per cent respondents reporting plans for capacity additions over the next six months. "High raw material prices, high cost of finance, uncertainty of demand, shortage of working capital, excess capacities, and availability of land at reasonable prices are some of the major constraints which are affecting expansion plans of the respondents," the survey stated. The cost of production as a percentage of sales for manufacturers has risen for 71 per cent respondents.
• The outlook for exports is "somewhat positive": Half of the participants expect a rise in exports in the September quarter. Meanwhile, the rupee depreciation has not led to any significant increase in exports during the first quarter of 2018/19. About 83 per cent of the respondents in the survey reported that exports were not affected because of the currency depreciation. "There were other global factors that are stymieing the growth of our exports," the report said. One of the factors affecting global trade is the sentiment of anti-globalisation, and trade wars sparked by the United States.
• There isn't much change in the hiring outlook for the manufacturing sector. It remains subdued with 65 per cent of the respondents mentioning that they are unlikely to hire additional workforce over the next three months. "However, this proportion has declined slightly as compared to the previous quarter during which 69 per cent of the respondents were not in favour of hiring additional workforce," the survey states.