Outlook for Manufacturing Slightly Down in third Quarter of 2017-18

Dec 19, 2017

'FICCI MANUFACTURING SURVEY'

Rupee Appreciation, Subdued Demand, High Production Costs Impact Competitiveness

Interest Rates Seem to be Moderating with Average Rates Falling Slightly

 

NEW DELHI, 19 December 2017: FICCI's latest quarterly survey on Manufacturing suggests slightly less optimistic outlook for the manufacturing sector in the Q-3 (October - December 2017-18) as the percentage of respondents reporting higher production in third quarter has fallen vis-���-vis previous quarter. The proportion of respondents reporting higher output growth during the Q-3 (October- December 2017-18) has fallen to 47% from 50% in Q-2, noted FICCI Survey. However, the percentage of respondents reporting low production has also come down to 15% in Q-3 quarter from 18% in Q-2 (July-September 2017-18) quarter.

 

This less optimistic outlook for manufacturing in third quarter of current fiscal is reported to be due to factors likerupee appreciation impacting exports, issues with regard to GST implementation and subdued demand in several sectors. In terms of order books, about 42% respondents in Q-3 (October-December 2017) are expecting higher number of orders as against 47% of Q2 2017-18 which again is reflecting subdued demand in economy.

 

FICCI's latest quarterly survey assessed the expectations of manufacturers for Q-3 (October- December 2017-18) for twelve major sectors namely auto, capital goods, cement and ceramics, chemicals and pharmaceuticals, electronics & 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 ₹3 lac crore.

 

Source: FICCI Survey

Capacity Addition & Utilization

Overall, the capacity utilization in manufacturing remains low. The average capacity utilization for the manufacturing sector is about 75% for Q-2 2017-18 as reported in the survey which is similar to that of Q-1 2017-18. As was the case in Q-1 2017-18, the future investment outlook remains pessimistic as 73% respondents in Q-2 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 & footwear, metal & metal products, cement and machine tools) average capacity utilization has either remained same or declined in Q-2 of 2017-18. On the other hand, sectors including auto, paper and electronics & electricals have registered a rise in the average capacity utilisation over the same period.

 

Table: Current Average Capacity Utilization Levels As Reported in Survey (%)

                                                                                          *NA: Not available due to lack of data

 

Inventories

Inventory situation hasn't changed much. 90% of the participants in Q-2 (July- September 2017-18) as compared to 92% in previous two quarters have maintained either more or same average levels of inventory.

Exports

Outlook for exports seem to be less optimistic vis-a-vis previous quarters. Although, 48% respondents expect no change in the export levels, but 32% expect exports to fall. Appreciation of rupee has made the respondents apprehensive of exports outlook with majority of the respondents (around 57%) reporting that their exports were affected in Q-2 due to rupee appreciation.

Hiring

Hiring outlook for the sector remains subdued in near future as 85% of the respondents in Q-3 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% of the respondents were not in favour of hiring additional workforce.

Interest Rate

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% but the highest rate continues to be as high as 15%.

Sectoral Growth

Based on expectations in different sectors, it is noted that high growth is expected in Auto, Capital Goods, Metal and Metal Products for Q-3 2017-18. Moderate growth is expected in Chemicals and Pharmaceuticals, Electronics & Electricals, Machine Tools and Textile Machinery in Q-3 2017-18 whereas low growth is expected in sectors like Cement and Ceramics, Food Products, Leather & Footwear and Textiles & Technical Textiles.

Table: Growth expectations for Q-3 2017-18 compared with Q-3 2016-17

 

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

                                                                                       Source: FICCI Survey

Production Cost