India’s manufacturing sector may witness higher growth during the July-September quarter buoyed by improvement in export prospects and domestic demand, even as the hiring outlook remains subdued, according to a survey.
The latest quarterly survey by Ficci on manufacturing outlook for the second quarter also finds that the interest rate paid by the manufacturers still remains high and sticky.
Uncertain economic environment, unfavourable market conditions, competition from imports, delayed clearances, inadequate infrastructure (especially availability of power) and cost escalation are some of the major constraints affecting the expansion plans of the industry, the poll noted.
The survey had earlier indicated a slowdown for the first quarter of 2016-17, which seems to be waning.
The proportion of respondents expecting higher growth during July–September quarter has risen to 55 per cent as against 53 per cent for April–June quarter 2016-17, although, it remains much below the percentage of 60 per cent for January–March quarter of the previous fiscal.
Manufacturing sector in India continued with its uptrend and hit a four-month high in July, backed by stronger upturn in new business orders. The Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) – a composite indicator of manufacturing performance – rose to 51.8 in July from 51.7 in June.
A reading above 50 denotes expansion while one below means contraction.
The slight improvement in the outlook for manufacturing production in second quarter of 2016-17 is attributable to various factors including somewhat better outlook for exports compared to previous quarters, and better outlook on domestic demand front too, the survey pointed out.
Export outlook for manufacturing in September quarter improved slightly as against the expectations for the first quarter. The proportion of respondents expecting higher exports in the second quarter rose by 5 percentage points to 41 per cent as against 36 per cent in 2016-17.
However, hiring outlook remains subdued in manufacturing in coming months as three quarters of the participants in second quarter of 2016-17 are unlikely to hire additional workforce in next three months. The proportion remains almost similar to that recorded for June quarter (76 per cent).
Moreover, average interest rate paid by the manufacturers still reportedly remains high and sticky. The rate is as high as 15 per cent as per the survey with average interest rate at around 11.5 per cent per annum.
The survey mapped expectations of manufacturers for thirteen major sectors namely auto, capital goods, cement and ceramics, chemicals, electronics & electricals, food products, leather and footwear, machine tools, metal and metal products, metal forging, paper products, textiles and technical textiles and textiles machinery.
Responses have been drawn from 308 manufacturing units from both large and SME segments with a combined annual turnover of over Rs 4 lakh crore.
The milder improvement for the quarter gets reflected in terms of investment as for Q2, 73 per cent respondents reported that they do not have any plans for capacity addition for the next six months, as against 75 per cent respondents in previous quarter.
Based on expectations in different sectors, the survey suggests that eight out of thirteen sectors were likely to witness low to moderate growth (less than 10 per cent).
Five sectors, namely capital goods, cement and ceramics, chemicals, metal forging and paper products are likely to witness strong growth of over 10 per cent in Q2 2016-17.
About 49 per cent respondents reported higher order books for the July–September quarter 2016-17 which is more than that of the previous quarter (38 per cent). Average capacity utilization for the total manufacturing sector is around 76 per cent for Q1 2016-17, marginally above the 74 per cent for Q4 2015-16, the poll revealed.
Inventory levels remain high with 82 per cent respondents maintaining either more or same levels of inventory as their average inventory levels. This is higher than previous quarter, where 76 per cent respondents reportedly carried either same or more than their average levels of inventory.
The cost of production as a percentage of sales for product for manufacturers in the survey has risen as 49 per cent respondents reported cost escalation while only 16 per cent reported lower production costs.