Except for the medical devices segment, all sectors are expected to see low growth in Q2 FY21 primarily due to “the imposition of lockdown, subdued demand, restricted exports and other guidelines in place as a response towards Covid outbreak."
The share of manufacturing units reporting an uptake in output increased to 24 per cent during the second quarter (July-September) of the financial year 2020-21 up from 10 per cent in Q1, according to FICCI’s latest quarterly survey. As per the responses drawn from more than 300 manufacturing enterprises including both large and MSME units with a combined annual turnover of around Rs 3 lakh crore, the percentage of respondents seeing low or same output stood at 74 per cent during Q2 down from 90 per cent during Q1 of FY21. The percentage of respondents witnessing higher output had peaked at 61 per cent in Q2 FY19 since Q3 FY17 when it hit 63 per cent. The share had increased slightly from 27 per cent in Q2 FY20 to 38 per cent in Q3 FY20 before falling to 10 per cent in the quarter ended September FY21.
Moreover, the future investment outlook was also subdued as only 18 per cent respondents reported plans to invest for capacity additions for the coming six months vis-à-vis 22 per cent in the preceding quarter. Among the major constraints impacting expansion plans for manufacturers were “high raw material prices, high cost of finance, shortage of skilled labor and working capital, high logistics cost, low domestic and global demand due to imposition of lockdown across all countries to contain the spread of coronavirus, excess capacities due to high volume of cheap imports into India, etc,” according to the survey.
However, on the positive side, the percentage of respondents seeing a rise in exports during the quarter has increased to 24 per cent in comparison to only 8 per cent during Q1 FY21. The hiring outlook, though marginally, also improved from 85 per cent respondents in Q1 not looking to hire an additional workforce to 80 per cent in the said quarter who may hire additional manpower in the coming three months. Interest rate too has reduced a bit for manufacturers to 9.2 per cent per annum in Q2 versus 9.4 per cent per annum in Q1. “The recent cuts in the repo rate by RBI has not led to a consequential reduction in the lending rate as reported by 55% of the respondents.”
Importantly, except medical devices segment, all the sectors are expected to see low growth in Q2 2020-21 based on expectations in multiple sectors primarily due to “the imposition of lockdown, subdued demand, restricted exports and other guidelines in place as a response towards Covid outbreak,” the survey added. Also, among major sectors, leather & footwear and textiles machinery witnessed lowest – only 46 per cent of their active operations post easing of the lockdown. On the other hand, in terms of workforce attendance in factories, leather & footwear again has only 50 per cent of the total workforce engaged in existing operations leading to labour shortage while chemicals, fertilizers & pharmaceuticals saw as high as 88 per cent workers attendance at factories.