Outlook for manufacturing marginally low in Q3 of 2017-18

Outlook for manufacturing marginally low in Q3 of 2017-18

New Delhi [India]: The statistics from FICCI’s quarterly survey on manufacturing suggests slightly less optimistic outlook for the manufacturing sector in the Q3 (October- December 2017-18) as the percentage of respondents reporting higher production in third quarter has fallen in comparison to the previous quarter.

The proportion of respondents reporting higher output growth during the Q3 (October- December 2017-18) has fallen to 47 from 50 percent in Q2, noted the FICCI Survey. However, the percentage of respondents reporting low production has also come down to 15 percent in Q3 from 18 percent in Q2 (July-September 2017-18).

This less optimistic outlook for manufacturing in third quarter of current fiscal is attributed to factors like rupee appreciation impacting exports, issues with regard to implementation of the Goods and Services Tax (GST) and subdued demand in several sectors.

In terms of order books, about 42 percent respondents in Q3 (October-December 2017) are expecting higher number of orders as against 47 percent of Q2 2017-18, again reflecting subdued demand in economy.

Overall, the capacity utilisation in manufacturing remains low. The average capacity utilisation for the manufacturing sector is about 75 percent for Q2 2017-18 as reported in the survey which is similar to that of Q1 2017-18.

As was the case in Q1 2017-18, the future investment outlook remains pessimistic as 73 percent respondents in Q2 2017-18 reported that they are not planning any capacity additions atleast for the next six months.

Increasing imports, excess capacities, lower domestic demand from industrial sectors, high raw material cost, high interest rates are some of the major constraints which are affecting expansion plans of the respondents. Some respondents also reported that they are waiting for the market to settle down after the GST.

Overall, in some sectors (like chemicals, food products, textiles, textiles machinery, leather and footwear, metal and metal products, cement and machine tools) average capacity utilisation has either remained same or declined in Q2 of 2017-18.

On the other hand, sectors including auto, paper and electronics and electricals have registered a rise in the average capacity utilisation over the same period.

On the exports front, the outlook seems to be less optimistic compared to previous quarters. Although, 48 percent respondents expect no change in the export levels, 32 percent expect exports to fall. Appreciation of rupee has made the respondents apprehensive of exports outlook with majority of the respondents (around 57 percent) reporting that their exports were affected in Q2 due to rupee appreciation.

Outlook for the hiring sector remains subdued in near future as 85 percent of the respondents in Q3 2017-18 mentioned that they are not likely to hire additional workforce in next three months. This proportion is much higher than the previous quarter, where 73 percent of the respondents were not in favour of hiring additional workforce.

Also, average interest rate paid by the manufacturers has slightly come down over last quarter, showing signs of moderation, with an average rate of 10.5 percent; but the highest rate continues to be around 15 percent.

Based on expectations in different sectors, it is noted that high growth is expected in auto, capital goods, metal and metal products; moderate growth is expected in chemicals and pharmaceuticals, electronics and electricals, machine tools and textile machinery and low growth is expected in sectors like cement and ceramics, food products, leather and footwear and textiles and technical textiles in Q3 2017-18.

Meanwhile, the cost of production as a percentage of sales for manufacturers in the survey has risen significantly for 59 percent respondents in Q3 2017-18. This is primarily due to rise in minimum wages, raw material cost and cost of power.

FICCI’s latest quarterly survey assessed the expectations of manufacturers for Q3 (October- December 2017-18) for twelve major sectors, namely auto, capital goods, cement and ceramics, chemicals and pharmaceuticals, electronics and electricals, food products, leather and footwear, machine tools, metal and metal products, paper products, textiles and textiles machinery.

Responses have been drawn from over 310 manufacturing units from both large and SME segments with a combined annual turnover of over Rs. 3 lac crore. (ANI)

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