India’s manufacturing sector is expected to regain the lost momentum in the fourth quarter (Q4) of this fiscal, according to the Federation of Indian Chamber of Commerce and Industry’s (FICCI) latest quarterly survey on manufacturing , which assessed recovery of the sector for Q3. The percentage of respondents reporting higher production in Q3 had increased compared to Q2.

The proportion of respondents reporting higher output during Q3 rose to 33 per cent compared to 24 per cent in Q2. The percentage of respondents expecting low or same production was 67 per cent in Q3 against 74 per cent in Q2.

The overall capacity utilization in manufacturing witnessed a rise to 74 per cent compared to 65 per cent in the previous quarter.

The future investment outlook, however, looks slightly better as 30 per cent respondents reported plans for capacity additions for the next six months as compared to 18 per cent in previous quarter.

High raw material prices, high cost of finance, shortage of skilled labour and working capital, high logistics cost, low domestic and global demand due to imposition of lockdown across all countries to contain spread of coronavirus, excess capacities due to high volume of cheap imports into India, lack of financial assistance, uncertain demand scenario across globe, complex procedures for obtaining environmental clearances and high power tariffs are some of the major constraints affecting expansion plans of the respondents, FICCI said in a press release.

Seventy eight per cent of the respondents had either more or same level of inventory in Q3, whereas around 79 per cent maintained either more or same level of inventory in July-September 2020.

The percentage of respondents expecting increase in exports has increased substantially to 29 per cent when compared to previous quarters during lockdown period, wherein 24 per cent respondents were expecting a rise in exports. Also, 34 per cent are expecting exports to continue to be on same path as that of same quarter last year.

The cost of production as a percentage of sales for manufacturers in the survey has risen for 63 per cent respondents. Industry respondents have attributed the hike in productions costs primarily to high fixed costs, higher overhead costs for ensuring safety protocols, drastic reduction in volumes due to lockdown, lower capacity utilization, high freight charges and other logistic costs, increased cost of raw materials, power cost, high manpower costs, energy costs, rupee depreciation and high interest rates.

Fibre2Fashion News Desk (DS)

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