Manufacturing Gaining Lost Momentum in Q-4: FICCI Manufacturing Survey

Mar 22, 2021

• Investment Outlook Picks Up; 30% respondents, as against 18% in previous quarter, plan to invest in next six months
 
• Hiring outlook improves, as 37% against 20% respondents in previous quarter plan to hire additional workforce

NEW DELHI, 22 March 2021: FICCI's latest quarterly survey on Manufacturing  assessed recovery of manufacturing sector for Q-3 (October-December 2020-21)  and pointed that the manufacturing sector is expected to regain the lost  momentum in the Q-4. The percentage of respondents reporting higher production  in third quarter of 2020-21 had increased vis-a-vis the Q-2 of 2020-21. The  proportion of respondents reporting higher output during October-December 2020  rose to 33%, as compared to 24% in Q-2 of 2020-21. The percentage of respondents  expecting low or same production is 67% in Q-3 2020-21 which was 74% in Q-2  2020-21.

Figure: % of  Respondents Expecting Higher Production in the Quarter
  vis-a-vis Respective Last Year's  Quarter

  Source FICCI Survey

FICCI's latest quarterly survey assessed the performance of  manufacturers for Q-3 (October-December 2020-21) and the sentiments for the  next quarter (Q-4) for twelve major sectors namely automotive, capital goods,  cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics  & electricals, leather and footwear, medical devices, metal & metal  products, paper products, textiles, textile machinery, and miscellaneous.  Responses have been drawn from over 300 manufacturing  units from both large and SME segments with a combined annual turnover of  around Rs 5.3 lakh crore.

Capacity Addition & Utilization

• The  overall capacity utilization in manufacturing has witnessed a rise to 74% as  compared to 65% in previous quarter.
 
• The  future investment outlook, however, looks slightly better as 30% respondents  reported plans for capacity additions for the next six months as compared to  18% in previous quarter.
 
• High  raw material prices, high cost of finance, shortage of skilled labor and  working capital, high logistics cost, low domestic and global demand due to  imposition of lockdown across all countries to contain spread of coronavirus,  excess capacities due to high volume of cheap imports into India, lack of  financial assistance, uncertain demand scenario across globe, complex  procedures for obtaining environmental clearances, high power tariff, are some  of the major constraints which are affecting expansion plans of the  respondents.
 
• From  the table below, the average capacity utilization has increased for half of the  twelve sectors.

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

Inventories

• 78% of  the respondents had either more or same level of inventory in October-December,  whereas around 79% of the respondents maintained either more or same level of  inventory in July-September 2020 quarter of 2020-21.

Exports

• The  percentage of respondents expecting increase in exports has increased  substantially to 29% when compared to previous quarters during lockdown period,  wherein 24% respondents were expecting a rise in exports. Also, 34% are  expecting exports to continue to be on same path as that of same quarter last  year.

Hiring

• Hiring  outlook for the sector, seems to be improving, as 37% against 20% in previous  quarter are planning to hire additional workforce.

Interest Rate

• Average  interest rate paid by the manufacturers has increased slightly to 9.5% p.a. as  against 9.2% p.a. during last quarter. The recent cuts in repo rate by RBI has  not led to a consequential reduction in the lending rate as reported by 55% of  the respondents.

Sectoral Growth

• Based  on expectations in different sectors, sectors such as Medical Devices,  Chemicals, Fertilizers & Pharmaceuticals, Textile Machinery, Electronics  & Electricals, Capital Goods and Metal and Metal Products are likely to  register strong growth in Q-3 2020-21.

Table: Growth Assessment Going Forward                                                                                                                  

Note: Strong > 10%; 5% <  Moderate < 10%; Low < 5%
  Source: FICCI Survey

Production  Cost

• The  cost of production as a percentage of sales for manufacturers in the survey has  risen for 63% respondents. Industry respondents have attributed the hike in  productions costs primarily to high fixed costs, higher overhead costs for  ensuring safety protocols, drastic reduction in volumes due to lockdown, lower  capacity utilization, high freight charges and other logistic costs, increased  cost of raw materials, power cost, high manpower costs, energy costs, rupee  depreciation and high interest rates.

Back  to Business Scenario in Manufacturing (Unlock period)

• As  evident from the table below, percentage of active operations in various  sectors ranges from 44 to 88 percent in the factories as per the demand and  current orders post easing out of lockdown restrictions.

Table:  Operations taking place in facilities post easing of the Lockdown Restrictions                                                                                                   

Workforce  Availability

• Below table highlights the total labor force engaged in the operations.

Table: Workforce Engagement in Factories                                                                                                                                                                                       

Sourcing Strategies

 
• While  not all sectors indicated a change in their input sourcing strategies but there  are plans to shift the sourcing of inputs away from single country in certain  areas.

Table:  Sector wise plans to shift away input sourcing from outside