New Delhi, 13 May 2016: FICCI’s latest Quarterly Survey on Manufacturing indicates slowdown in manufacturing sector’s growth for the Quarter 1 (April-June 2016-17). The survey had earlier indicated revival in the manufacturing activity in Q-4 of 2015-16, which seems to be slowing down in Q-1 now. The percentage of respondents expecting higher growth in Q-1 2016-17 has gone down to 53% as compared to 60% for Q-4 (Jan-March 2015-16). The percentage was 55% for Q-3 2015-16.
FICCI’s latest quarterly survey gauges the expectations of manufacturers for Q-1 (April-June 2016-17) for thirteen major sectors namely textiles, capital goods, metals, chemicals, cement and ceramics, electronics, auto, leather & footwear, machine tools, food, tyre, paper and textiles machinery. Responses have been drawn from 308 manufacturing units from both large and SME segments with a combined annual turnover of over ₹4 lac crore.
The outlook on the basis of FICCI Manufacturing Survey for Q-4 of 2015-16 was more optimistic than in the current quarter. While the bleak export outlook is responsible for this less optimistic outlook for manufacturing production in first quarter of the current financial year but there have been several other factors that have contributed to this bleak outlook like poor demand conditions, unstable roadmap for various sectors leading to uncertainty, high interest cost etc.
In terms of order books, only 38% respondents have reported higher order books for the quarter April – June 2016-17 which is less than that of previous quarter (44%).
Quarter
|
% of Respondents Expecting Higher Production in the Quarter vis-à-vis Respective Last Year’s Quarter
|
Q-1 (2016-17)
|
53%
|
Q-4 (2015-16)
|
60%
|
Q-3 (2015-16)
|
55%
|
Q-2 (2015-16)
|
63%
|
Q-1 (2015-16)
|
44%
|
Q-4 (2014-15)
|
52%
|
Q-3 (2014-15)
|
50%
|
Q-2 (2014-15)
|
62%
|
Q-1 (2014-15)
|
50%
|
Q-4 (2013-14)
|
56%
|
Q-3 (2013-14)
|
52%
|
Q-2 (2013-14)
|
48%
|
Q-1 (2013-14)
|
35%
|
Q-4 (2012-13)
|
36%
|
Q-3 (2012-13)
|
45%
|
Q-2 (2012-13)
|
44%
|
Q-1 (2012-13)
|
46%
|
Q-4 (2011-12)
|
36%
|
Capacity Addition & Utilization
In terms of investment, for Q-1 2016-17, 75% respondents as against 68% respondents in previous quarter reported that they don’t have any plans for capacity additions for the next six months implying slack in the private sector investments in manufacturing to continue. Here again, uncertainty in the policies, poor demand conditions, high cost of borrowing, delayed clearances and cost escalation are some of the major constraints which are affecting the expansion plans of the respondents.
The current average capacity utilization as reported in the survey for the total manufacturing sector is around 74% for Q-4 which is less than the capacity utilization indicated in the earlier survey i.e. Q-4 2014-15 when it was around 77%.
Table: Current Average Capacity Utilization Levels As Reported in Survey
Sector
|
Average Capacity Utilization (%) in Q-4 2014-15
|
Average Capacity Utilization (%) in Q-4 2015-16
|
Auto
|
75
|
78
|
Capital Goods
|
65
|
71
|
Cement
|
65
|
80
|
Chemicals & Fertilizers
|
87
|
87
|
Textiles
|
82
|
79
|
Electronics & Electricals
|
70
|
75
|
Food
|
65
|
70
|
Leather & Footwear
|
68
|
57
|
Metals
|
70
|
68
|
Textiles Machinery
|
60
|
60
|
Tyre
|
80
|
80
|
Paper*
|
NA
|
87
|
However, in some sectors, average capacity utilization has improved while in others it has almost remained same in Q-4 of 2015-16 as was in Q-4 of 2014-15. Capacity utilization has improved in cement, food, capital goods and electronics sector. On the other hand, in sectors like Chemicals, textiles machinery and tyres capacity utilisation has remained same.
Inventories
Inventory levels remain high with 76% respondents carrying either more or same levels of inventory as their average inventory levels as per the survey. However, this is lower than previous quarter, where 88% respondents reportedly carried either same or more than their average levels of inventory.
Exports
Export outlook for manufacturing continues to have the downward trajectory in Q-1 2016-17 with the proportion of respondents expecting higher exports in the quarter further falling. The proportion of respondents expecting higher exports in Q-1 2016-17 is 36% which is much lower than 41% in Q-4 2015-16.
Hiring
Hiring outlook seems bleak in manufacturing in coming months as over 80% respondents in Q-1 2016-17 as compared to around 76% in Q-4 2015-16, are not likely to hire additional workforce in next three months.
Interest Rate
Interest rate paid by the manufacturers seems to have moderated in the last few months, however it remains still high. The rate ranges from 6% to 15% as per the survey with average interest rate at around 11.4% per annum as compared to 11.8% average reported in the previous survey.
Sectoral Growth
Based on expectations in different sectors, the Survey pointed out that ten out of thirteen sectors were likely to witness low to moderate growth (less than 10%). Three sectors namely, capital goods, electronics & electricals and auto are likely to witness strong growth of over 10% in Q-3 2015-16.
Table: Growth expectations for Q-1 2016-17 compared with Q-1 2015-16
Sector
|
Growth Expectation
|
Capital Goods
|
Strong
|
Auto
|
Strong
|
Electronics & Electricals
|
Strong
|
Chemicals and Petro-Chemicals
|
Moderate
|
Textiles and Technical Textiles
|
Moderate
|
Machine Tools
|
Moderate
|
Paper
|
Moderate
|
Food Products
|
Moderate
|
Cement and Ceramics
|
Moderate
|
Tyres
|
Moderate
|
Textiles Machinery
|
Low
|
Metals & Metal Products
|
Low
|
Leather and Footwear
|
Low
|
Note: Strong > 10%; 5% < Moderate < 10%; Low < 5%
Source: FICCI Survey
Production Cost
The cost of production as a percentage of sales for product for manufacturers in the survey has shown some moderation as 47% respondents reported that it has come down vis-à-vis last year as against 50% respondents reported so in the previous survey.
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