India’s Q3 manufacturing outlook improves, cost of business still concerning

India's outlook for manufacturing for the October-December, 2021 quarter has seemingly improved, reports The Economic Times.

However, the cost of doing business still remains a matter of concern along with hiring process which remains subdued says a survey by Federation of Indian Chambers of Commerce & Industry (FICCI).

The findings of the latest quarterly survey on manufacturing unveiled on Sunday also reflect sustained economic activity in the sector, with existing average capacity utilisation in the range of 65 to 70 per cent.

It also highlighted that manufacturers are looking forward to the upcoming Union Budget to enhance growth and investments in the sector. The Budget will be presented on February 1.

The percentage of respondents reporting higher production in the third quarter of 2021-22 (October-December 2021-22) was around 63 per cent, almost double than the year-round period (around 33 per cent), noted FICCI.

This assessment is also reflective in order books as 61 per cent of the respondents in October-December 2021-22 had a higher number of orders as against July-September 2021-22, the survey found.

High raw material prices, high cost of finance, the uncertainty of demand, shortage of working capital, high logistics cost, low domestic and global demand due to supply chain disruptions are some of the major constraints that are affecting the expansion plans of the respondents, it said.

The survey assessed the performance and sentiments of manufacturers for Q3 (October-December 2021-22) for 12 major sectors namely automotive, capital goods, cement, chemicals, fertilisers and pharmaceuticals, electronics & electricals, medical devices, metal & metal products, paper products, textiles, textiles machinery and miscellaneous.

Responses have been drawn from over 300 manufacturing units from both large and SME (small and medium enterprise) segments with a combined annual turnover of over Rs 2.7 lakh crore.

Around half of the participants expect a rise in their exports for Q3 2021-22 as against the same quarter of the previous year.

"Hiring outlook for the manufacturing sector remains subdued as around 75 per cent of the respondents mentioned that they are not likely to hire additional workforce in the next three months," FICCI stated on the survey.

However, an average interest rate paid by the manufacturers has reduced slightly to 8.4 per cent per annum as against 8.7 per cent during last quarter and the highest rate remains as high as 15 per cent. It highlights that cuts in repo rate in the last few months by RBI have not led to a proportional reduction in the lending rate as reported by around 60 per cent of the respondents.

High raw material prices, increased transportation and logistics cost, and rise in the prices of diesel, LPG, natural gas, power, and fuel has been the main contributor to the increasing cost of production.

Other factors affecting the cost of production are increasing labour cost, short supply of raw material, high cost of carrying inventory, and fluctuation in the foreign exchange rate, showed the survey.