Sun, Dec 11, 2016 | updated 05:17 PM IST

FICCI survey on Indian manufacturing products upturn in Quarter 2

Updated: Aug 26, 2016 11:25 IST
New Delhi [India], Aug.26 (ANI): FICCI's latest quarterly survey on manufacturing indicates an improved outlook for the sector in quarter 2 of 2016-17 (July-September) buoyed by the improved outlook in exports.

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 the July-September quarter has risen to 55 percent as against 53 percent for April-June quarter 2016-17, although, it remains much below the percentage of 60 percent for January-March quarter of the previous fiscal.

The slight improvement in the outlook for manufacturing production in second quarter of the current financial year is attributable to various factors, including somewhat better outlook for exports compared to previous quarters, and better outlook on domestic demand front too, noted FICCI Survey.

The survey that gauges the expectations of manufacturers for Q-2 (July-September 2016-17) for thirteen major sectors namely auto, capital goods, cement and ceramics, chemicals, electronics and electricals, food products, leather and footwear, machine tools, metal and metal products, metal forging, paper products, textiles and technical textiles and textiles machinery, has shown slight improvement in manufacturing sector over the last few quarters due to number of initiatives taken by Government in the last few months.

Responses have been drawn from 308 manufacturing units from both large and SME segments with a combined annual turnover of over ?4 lac crore.

Quarter

Percentage of respondents expecting higher production in the quarter vis-a-vis respective last year's quarter

Q-2 (2016-17)

55%

Q-1 (2016-17)

53%

Q-4 (2015-16)

60%

Q-3 (2015-16)

55%

Q-2 (2015-16)

63%

Q-1 (2015-16)

44%

Q-4 (2014-15)

52%

Q-3 (2014-15)

50%

Q-2 (2014-15)

62%

Q-1 (2014-15)

50%

Q-4 (2013-14)

56%

Q-3 (2013-14)

52%

Q-2 (2013-14)

48%

Q-1 (2013-14)

35%

In terms of order books, almost half (49%) respondents reported higher order books for the quarter July - September 2016-17 which is more than that of the previous quarter (38%).

The milder improvement for the quarter gets reflected in terms of investment as for Q-2 2016-17, 73% respondents as against 75% respondents in previous quarter reported that they don't have any plans for capacity additions for the next six months. Though the proportion standing against expansion plans is still considerably high but is comparatively lower on a quarter-on-quarter basis. 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 which are affecting the expansion plans of the respondents. The average capacity utilization as reported in the survey for the total manufacturing sector is around 76% for Q-1 2016-17, marginally above the 74% for Q-4 2015-16.

Table: Current Average Capacity Utilization Levels As Reported in Survey

Sector

Average Capacity Utilization (%) in Q-4 2015-16

Average Capacity Utilization (%) in Q-1 2016-17

Auto

78

77

Capital Goods

71

80

Cement

80

87.5

Chemicals

87

83

Textiles

79

84

Electronics & Electricals

75

65

Food

70

57

Leather & Footwear

57

60

Metals

68

70

Textiles Machinery

60

50

Tyre*

80

NA

Paper

87

80

Inventory levels remain high with 82% respondents maintaining either more or same levels of inventory as their average inventory levels. This is higher than previous quarter, where 76% respondents reportedly carried either same or more than their average levels of inventory.

Export outlook for second quarter's manufacturing also improved slightly as against the expectations for the first quarter. The proportion of respondents expecting higher exports in the second quarter 2016-17 rose by 5 percentage points to 41% as against 36% in 2016-17.

Hiring outlook remains subdued in manufacturing in coming months as three quarters of the participants in Q-2 2016-17 are unlikely to hire additional workforce in next three months. The proportion remains almost similar to that recorded for Q-1 2016-17 (76%).

Average interest rate paid by the manufacturers still reportedly remains high and sticky. The rate is as high as 15% as per the survey with average interest rate at around 11.5% per annum which is similar to that reported in the previous survey.

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%). Five sectors, namely capital goods, cement and ceramics, chemicals, metal forging and paper products are likely to witness strong growth of over 10% in Q-2 2016-17.

Growth expectations for Q-2 2016-17 compared with Q-2 2015-16

Sector

Growth Expectation

Capital Goods

Strong

Cement and Ceramics

Strong

Chemicals

Strong

Metal Forging

Strong

Paper

Strong

Auto

Moderate

Textiles and Technical Textiles

Moderate

Textiles Machinery

Moderate

Electronics & Electricals

Low

Machine Tools

Low

Food Products

Low

Metals & Metal Products

Low

Leather and Footwear

Low

Note: Strong > 10%; 5% < Moderate < 10%; Low < 5%

The cost of production as a percentage of sales for product for manufacturers in the survey has risen as 49% respondents reported cost escalation while only 16% reported lower production costs.

Key Constraints for Manufacturing Sectors

Given below in tabular format the key constraints for each sector in manufacturing as shared by respondents in the survey.

Capital Goods

Rising raw material prices (Steel etc)

Shortage of working capital

Increased competition faced from imports

Lack of domestic & export demand

Shrinking exports to Africa as many of the African countries, particularly Nigeria, is having foreign Exchange restrictions.

Cement and Ceramics

Duty-free imports of cement

Inadequate domestic coal supplies against coal linkages

Deficiency and high prices of raw materials

Sluggish domestic and export demand

Inverted duty structure

Chemicals

Deficiency of feedstock

Sluggish domestic and export demand

Forging

Inadequate investment in infrastructure

Clearances for coal mining which will in turn give a boost to heavy transport vehicles

Technology up gradation in MSMEs

Paper

Inadequate public investment in infrastructure

High interest rates

High prices and deficiency of key raw materials

Auto

Uncertainty of tax rates and policy interventions related to vehicles

Uncertainty on the long term roadmap for fuel type, vehicular emission and safety regulations for vehicles

Labour-related reforms

Shortage of working capital

Low external demand.

Textiles and Technical Textiles

High prices of raw materials

Inverted duty structure

Labour related reforms

Low domestic and export demand

Competition from imports

Textiles Machinery

High imports of second-hand machinery which are available domestically as well

Availability of TUFS benefit on second hand textile machinery

Need for uniform rate of excise duty on all items of textile machinery and components

Increase in customs duty on textile machinery

Absence of TUFS for the Textile Engineering Industry

Electronics & Electricals

High prices of raw materials

Inverted duty structure

Competition faced from imports

Lower domestic demand

Shortage of working capital finance

Low export demand

Machine Tools

Shortage of working capital

Lower domestic and export demand

Competition faced from imports

Food Products

Rising prices of raw materials

Labour related reforms

Shortage of skilled labour

Lower demand

Metals & Metal Products

Deficiency and high prices of raw materials

Deficiency of power

Lack of domestic and export demand

Competition faced from imports

Shortage of skilled labour

Leather and Footwear

High prices of raw materials

Inverted duty structure

Deficiency of power

Lower domestic and external demand

High cost of premium for both pre- and post-shipment for ECGC guarantee (ANI)