Market Overview India: A flat quarter for the manufacturing sector

A brief look at the FICCI report on the indian manufacturing sector vide its Quarterly Survey and the conclusions therein.

The Federation of Indian Chambers of Commerce and Industry, commonly known as FICCI is one of the country’s oldest and well known business organizations, and is widely acknowledged as a forerunner in promoting policy change. Suffice to say that when FICCI estimates that the manufacturing sector is declining, the manufacturing pundits sit up and take notice.

According to the FICCI’s survey of the sector for the first quarter of 2017, the Indian manufacturing industry has little to celebrate or look forward to as at the end of March 2017. A tepid budget and the long reaching after effects of demonetization are still being felt across several sectors. The survey, based solely on responses from twelve major manufacturing hubs, included assessments from industries such as machine tools, metal and metal products, auto, capital goods, ceramic goods, textiles, etc. The responses were drawn from 320 manufacturing units – large and small both.

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A brief summary

• An overview of the reasons behind this decline can be summarized as follows, across all sectors:

• Rising costs of productions

• Uncertain outlook towards exports and policies related to exports

• Increased competition from imports

• Lack of demand from OEM’s (original equipment manufacturers)

• Shortage of credit in the financial sector

According to the survey, 75 per cent of the respondents have no plans for capacity addition in the coming six months, which implies that a slack in private sector investments in manufacturing will continue. Average capacity utilization is down to 75 per cent from 77 per cent and 97 per cent respondents reported a sharp rise in inventory levels.

Hiring outlook has also remained subdued as 77 per cent of the survey participants reported that they are unlikely to hire additional workforce in the next quarter. Sixty per cent participants reported and escalated increase in costs of productions, mainly due to the increase in minimum wages and raw material costs. Interest rates remain high, averaging between 11-15 per cent.

According to the survey respondents, the major issues which need to be addressed to stimulate revenue growth are:

• A quick and early implementation of the GST

• Reduction in interest rates

• Higher investments in infrastructure

While the survey doesn’t paint a very vibrant future for the overall manufacturing industry, some manufacturing sectors are still expected to perform marginally better than others, for example the chemical and leather industries. We can only wait and watch if policies such as the GST, to go live in the next quarter, will serve to change the figures of the next FICCI survey.

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