Outlook for Indian Manufacturing Improves Slightly in First Quarter of 2017 – 18 : FICCI Report

Indian manufacturing
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A recent study on the Indian manufacturing industry by one of India’s leading apex chamber, FICCI, finds that the manufacturing sector outlook in the first quarter of the fiscal year(2017-18). During the study, more percentage of respondents reported to have higher productions than that of the previous quarter.

FICCI Survey suggests that the percentage of respondents reporting lower production has reduced considerably over the previous quarter thereby indicating a more positive outlook in months to come. The proportion of respondents reporting higher output growth during the April – June 2017-18 quarter has risen slightly from 47% January – March 2016-17 to 49%. Respondents reporting negative growth have come down to 17% in April – June 2017-18 from 27% as reported in the previous quarter, noted FICCI Survey.

FICCI’s latest quarterly survey assessed the expectations of manufacturers for Q-1 (April – June 2017-18) for eleven major sectors namely auto, capital goods, cement and ceramics, chemicals and fertilizers, electronics & electricals, leather and footwear, machine tools, metal and metal products, paper products, textiles and technical textiles, and textiles machinery. Responses have been drawn from over 300 manufacturing units from both large and SME segments with a combined annual turnover of over INR 3.5 lac crore.

However, the cause for worry was the rising cost of production (for a little over two-thirds of the respondents), the Survey noted. The cost of production as a percentage of sales for product for manufacturers in the survey has risen significantly as 69% respondents in Q-1 2017-18, against 60% respondents reported cost escalation in last quarter. This is primarily due to rise in minimum wages and raw material cost.

However, the cause for worry was the rising cost of production (for a little over two-thirds of the respondents), the study on Indian manufacturing industry noted. The cost of production as a percentage of sales for product for manufacturers in the survey has risen significantly as 69% respondents in Q-1 2017-18, against 60% respondents reported cost escalation in last quarter. This is primarily due to rise in minimum wages and raw material cost.

However, the cause for worry was the rising cost of production (for a little over two-thirds of the respondents), the Survey noted. The cost of production as a percentage of sales for product for manufacturers in the survey has risen significantly as 69% respondents in Q-1 2017-18, against 60% respondents reported cost escalation in last quarter. This is primarily due to rise in minimum wages and raw material cost.

In terms of order books, about 47% respondents in April – June 2017-18 quarter reported higher order numbers which is almost the same as that recorded in the previous quarter.

Capacity Addition & Utilization

The average capacity utilization as reported in the survey for the manufacturing sector is about 75% for Q-4 2016-17 which is similar to that of Q-3 2016-17. The future investment outlook remains less optimistic. Even now, 74% respondents in Q-1 2017-18 as against 75% respondents in Q-4 2016-17 reported that they don’t have any plans for capacity additions for the next six months. Although, the bleak investment outlook seems to be waning if Q-3 2016-17 is taken into consideration (when 77% respondents had no plans for capacity addition). High percentage implies slack in the private sector investments in manufacturing is here to continue for some more months. Large volumes of imports, under-utilised capacities and lower domestic demand from industrial sectors and OEMs are some of the major constraints which are affecting the expansion plans of the respondents.

On a broader perspective, in some sectors (like chemicals, capital goods, textiles machinery, cement, metals and paper) average capacity utilization has either remained same or declined in Q-4 of 2016-17. On the other side, some sectors including auto, textiles and electronics and electricals reported a rise in the average capacity utilization over the same period.

Average Capacity

Average Capacity

Average Capacity

Average Capacity

Sector

Utilisation in Q-4

Utilisation in Q-3

Utilization in Q-2

Utilization in Q-1

2016-17

2016-17

2016-17

2016-17

Auto

78

75

80

77

Capital Goods

71

74

70

80

Cement

72

80

80

87.5

Chemicals

76

76

83

83

Textiles

82

79

84

84

Electronics &

68

58

70

65

Electricals

Food

NA

60

60

57

Leather &

55

60

60

60

Footwear

Metals

76

82

70

70

Textiles

60

60

60

50

Machinery

Paper

80

87.5

85

80

Machine Tools

80

NA

80

NA

Table: Growth expectations for Q-1 2017-18 compared with Q-1 2016-17 on Indian Manufacturing sector

Sector

Growth

Expectation

Cement and Ceramics

Low

Chemicals

Low

Auto

Low

Textiles and Technical Textiles

Low

Electronics & Electricals

Strong

Machine Tools

Moderate

Metals & Metal Products

Moderate

Leather and Footwear

Moderate

Capital Goods

Moderate

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