Manufacturing firms' production costs up

If you think that companies are on a high owing to lower wage, power, interest and administrative costs, think again.

These costs have dropped, but higher inputs costs "" the cost of finished goods that come in as inputs "" have largely offset these advantages, points out a Centre for Monitoring Indian Economy (CMIE) study of the financial performance of Indian companies between 1991-92 and 2002-03.

"The share of purchase of finished goods increased from 13 per cent in 1991-1992 to 20 per cent in 2002-03. This reflects a shift in business, from manufacturing to trading or outsourcing, which is partly responsible for the drop in the share of wages and power costs," the study says.

"The rise in costs of finished goods is much higher than the fall in other costs," the study adds, noting that as a result of the shift in the cost structure, the cost of production of manufacturing companies increased from 80.4 per cent of net sales in 1991-92 to 82.2 per cent in 2002-2003.

"This is disturbing, given that labour has become more mobile and its costs have come down, and infrastructure has also improved," CMIE says.

The total cost, including production, selling and administration, also increased from 93 per cent of sales in 1991-92 to 94 per cent in 2001-02.

In 2002-03, it dropped sharply to 92 per cent. This was mainly because of an increase in the stock of finished goods, which account for 1 per cent of net sales. This led to a 2 per cent rise in the operating profit of the manufacturing sector during 2002-03.

Data for 1991-92 to 2002-03 show that the manufacturing sector has saved on its wage and power bill and administrative costs.

The share of wages in total costs declined from 6.1 per cent in 1991-92 to 4.4 per cent in 2002-03.

The textile and automobile sectors were the biggest gainers in this respect. The share of power and fuel costs declined from 6 per cent in 1991-1992 to 5.2 per cent in 2002-03.

Further, the savings on administrative overheads have been quite significant. They have come down from 7.3 per cent in 1991-92 to 5.3 per cent in 2002-03.