Q2 manufacturing outlook seen improving, cost of biz a worry: Ficci Survey

Percentage of respondents reporting higher production in the second quarter of 2021-22 (July-September) was much above the 50% mark, at about 61%

Even as cost of business remains a concern, the outlook for increased manufacturing activities in the July-September quarter of the current fiscal is expected to improve significantly, according to a survey by industry lobby group Federation of Indian Chambers of Commerce and Industry (Ficci).

“The percentage of respondents reporting higher production in the second quarter of 2021-22 (July-September) was much above the 50 per cent mark--around 61 per cent. This was significantly higher than the similar percentage of last year’s Q2 quarter (around 24 per cent). The percentage of respondents expecting low or same production is 39 per cent in Q2 of 2021-22,” the survey said. The outlook was subdued in the first quarter owing to the disruption caused by the second wave.

The overall capacity utilisation in manufacturing was 72 per cent in the quarter ended September, which is an indication of recovery in manufacturing.

These findings are as per Ficci’s latest quarterly survey that assessed the sentiments of manufacturers for July-September for eleven major sectors--automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics & electricals, metal & metal products, paper products, textiles, textiles machinery, toys and miscellaneous. More than 300 manufacturing units from both large and SME segments with a combined annual turnover of over Rs 2.7 trillion participated in the survey.

Industry respondents said that high raw material prices, high cost of finance, uncertainty of demand, shortage of skilled labor and working capital, high logistics cost, excess capacities due to high volume of cheap imports into India, unstable market, high power tariff, are some of the major constraints affecting their expansion plans. Besides, uncertainty and lockdowns imposed due to covid-19 has resulted in low domestic and global demand.

According to the survey, the cost of production as a percentage of sales for manufacturers in the survey has risen for 80 per cent respondents in the second quarter. “This is considerably higher than that reported in Q4 2020-21, where 72 per cent respondents recorded an increase in their production costs,” it said.

As far as exports are concerned, the outlook seems to be improving, with around 58 per cent of the participants expecting a rise in their outbound shipments during the second quarter. Thirty per cent respondents expect exports to continue to be on the same path as that of the same quarter in 2020-21.

Hiring outlook remained subdued as over two-third respondents mentioned that they are not likely to hire additional workforce in the next three months. “This presents a near stable situation in the hiring scenario as compared to the previous quarter Q1 of 2021-22, where 69% of the respondents maintained similar sentiments,’ it said.

As far as the growth for the 11 sectors is concerned, except toys, other sectors are expected to witness ‘strong and moderate’ growth.