Manufacturing growth outlook rises

Expectations of growth in the manufacturing sector improved marginally in July-September, fuelled by hopes of higher exports, according to a survey by FICCI.

The quarterly manufacturing survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) on Thursday revealed the proportion of respondents expecting higher growth during July-September rose marginally to 55 per cent from 53 per cent during the previous quarter.

However, manufacturers are yet to regain confidence in growth prospects as was evident in January-March, when 60 per cent of respondents expected higher growth. The industrial sector accelerated to an eight-month high in June, growing by 2.1 per cent with the aid of electricity and mining. Manufacturing, which contributes 75 per cent to the Index of Industrial Production, grew 0.9 per cent during the month, slightly higher than 0.6 per cent in the previous month.

The latest uptick in growth expectation, according to the survey, is primarily due to a slight improvement in the export outlook, with 41 per cent of respondents confident of higher exports, up from 36 per cent in the previous quarter. After rising for the first time in 18 months in June, merchandise exports shrank in July by 6.84 per cent on a decline in shipments of engineering goods and petroleum products.

Gauging expectations of manufacturers across 13 major industries, including automobiles, capital goods, cement, chemicals, and textiles, the survey showed the hiring outlook continued to remain subdued. Only 25 per cent of respondents confirmed hiring additional workforce, same as in the previous quarter. The survey suggested eight of the 13 industries were likely to witness low to moderate growth (less than 10 per cent). Five sectors – capital goods, cement and ceramics, chemicals, metal forging, and paper products – are likely to witness strong growth of over 10 per cent. The mild improvement for the quarter also reflected in investment- 27 per cent of respondents reported plans for capacity addition against 25 per cent in the previous quarter.

Manufacturers pointed to the uncertain economic environment, unfavourable market conditions, competition from imports, delayed clearances, and cost escalation as major constraints for expansion.

The average interest rate paid by manufacturers remained high at 11.5 per cent per annum, similar to the previous quarter’s figure. On Wednesday, Commerce and Industry Minister Nirmala Sitharaman pitched for a cut in the repo rate by as much as 2 percentage points by the Reserve Bank of India to help cash-starved medium and small enterprises.

The average capacity utilisation of the manufacturing sector fell to 74 per cent in April-June from 76 per cent in January-March, the survey noted.