Market Overview A flat quarter for the manufacturing sector
India – Taking a brief look at the Ficci report on the Indian manufacturing sector quarterly survey and its conclusions.
The Federation of the Indian Chambers of Commerce and Industry, commonly known as Ficci, is one of the country’s oldest and well-known business organisations that is also widely acknowledged as a forerunner in promoting policy changes. Furthermore, when Ficci estimates that the manufacturing sector is declining, the manufacturing experts sit up and take notice.
According to Ficci's first quarterly survey of the sector this year, the Indian manufacturing industry has little to celebrate or look forward to till end March 2017. A tepid budget and the long reaching after-effects of demonetisation 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 response was drawn from 320 manufacturing units, both large and small.
A brief summary
- An overview of the reasons behind this decline can be summarised as follows, across all sectors:
- Rising costs of production
- 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% 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 utilisation is down to 75% from 77% and 97% of the respondents reported a sharp rise in inventory levels.
Hiring outlook has also remained subdued, with 77% of the survey participants reported that they are unlikely to hire additional workforce in the next quarter. 60% participants reported an escalated increase in costs of production, mainly due to the increase in minimum wages and raw material costs. Interest rates remain high, averaging between 11 to 15%.
According to the survey respondents, the major issues that 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. It will only mean to wait and watch if policies such as the GST, which is to exercised in the the next quarter, will serve to change the figures of the next Ficci survey.
This article appeared in www.maschinenmarkt.international.