Sentiment ebbs in manufacturing

Survey says only 24% very optimistic about state of the economy

Sentiment among manufacturing sector business leaders has ebbed from last year though the latest gross domestic product (GDP) estimates showed that the manufacturing sector grew at 12.6 per cent in the third quarter of the financial year.

A Ficci/PwC survey said 36 per cent of the respondents expected margins to increase over 12 months, down from 47 per cent the year before.

Overall sentiment about the state of the economy also seemed to have moderated. Only 58 per cent of the respondents were somewhat optimistic of the prospects of the Indian economy in the coming year compared with 68 per cent in last year’s survey. Only 24 per cent were very optimistic about the state of the economy.

On growth, only 11 per cent expected significant economic growth over the coming year, while 23 per cent expected no noticeable change in growth. A majority of the respondents agreed that growth would be in the range of 7–8 per cent.

The PwC India Manufacturing Barometer, conducted in partnership with Ficci, covered 98 companies in eight key sectors: Automobiles and auto components; cables and transformers; capital goods and heavy equipment; cement; chemicals; downstream metals; glass and paper. The outlook for these sectors was mixed. Business leaders in sectors such are automobiles and auto components, capital goods and heavy equipment, cement and paper were more optimistic about their prospects. Those in cables and transformers, chemicals, downstream metals and glass sectors were neutral in their outlook. This decline in sentiment, contradicting the latest GDP numbers, suggested businesses were taking a “cautious approach”. Only 40 per cent of the respondents expected their next year’s revenue growth to be at least 10 per cent, down from 51 per cent last year. Only 13 per cent said they expect growth to be higher at 15-20 per cent. Fifty-four per cent expected revenue growth to be in the range of 0-10 per cent.

While respondents said some of the issues thwarting growth have been resolved, many said some have not been addressed. On top of the agenda was of the contentious Goods and Services Tax (GST) Bill, followed by a greater push to improve ease of doing business and greater infrastructure growth.

The respondents cited lack of demand, competition from foreign markets and high input costs as factors impeding growth.

On the NDA government’s Make in India campaign, the survey showed 85 per cent of the respondents interpreted the campaign as encouraging production in India. They believed that the energetic campaign had led to an “improvement in ease of doing business as well as attracted greater foreign financial investment". But 9 per cent said it was "purely a marketing campaign to attract foreign financial investment".

While respondents said the government was driving the campaign through greater deregulation, labour reforms, and tax and duty exemptions, they said much more needed to be done as the "initiative is yet to be felt by companies" and while "necessary action has been promised, implementation has been slow".