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Manufacturing growth momentum continues for 6-9 months: FICCI

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The growth momentum that the manufacturing sector has picked up in recent months is likely to continue for the next six to nine months, Quarterly Production Survey performed by trade association FICCIA revealed.



The latest survey shows that following a rebound of the Indian economy in the fiscal year 2021-22, growth momentum in the following quarters of the first quarter (April-June 2022-23) and the second quarter of July-September (2022-23) 23) persisted with more than 61 percent of respondents reporting higher production levels in the second quarter (July-September 2022-23).

This is significantly more than the percentage of respondents who experienced higher growth in the second quarter of recent years, including pre-Covid years. This assessment is also reflected in the order books, as 54 percent of respondents had a higher number of orders in the second quarter (July-September 2022-23).

FICCI assessed manufacturers’ sentiments for Q2 July-September (2022-23) for ten key sectors, namely automotive and automotive components, capital goods, CementChemistry Fertilizers and Pharmaceuticals, Electronics, Machine tools, Metal and metal products, paper products, textiles, textile machinery and miscellaneous. Responses have been received from more than 300 production units of both large and SMEs segments with a combined annual turnover of more than 2.8 lakh crores.

Capacity Addition and Usage:

The existing average capacity utilization rate in the manufacturing sector is over 70 percent, reflecting continued economic activity in the sector.

The future investment outlook has also improved slightly compared to the previous quarter, as nearly 40 percent of respondents reported plans for capacity expansions in the next six months, averaging more than 15 percent.

Global economic uncertainty caused by the war between Russia and Ukraine and increasing cases of various mutations of the COVID virus worldwide have exacerbated the volatility affecting major economies.

High raw material prices, higher financing costs, cumbersome regulations and approvals, shortage of working capital, high logistics costs due to rising fuel prices and blocked shipping routes, low domestic and global demand, overcapacity due to large volume of cheap imports to India, unstable market, high electricity tariffs, shortage skilled labor, highly volatile prices of certain metals, etc., and other supply chain disruptions are some of the major constraints affecting respondents’ expansion plans.

stocks:

More than 87 percent of respondents had more or the same inventory level in the second quarter of July-September 2022-23, which is the same as in the previous quarter, where about 86.19 percent of respondents expected more or more. same stock level.

Output:

The outlook for exports looks positive as more than 42 percent of respondents expect a strong increase in exports in the second quarter of 2022-23 compared to the second quarter of July-September of the fiscal year 2021-22.

Hiring:

Positive hiring remains below potential as 36 percent of respondents in Q2 2022-23 were looking to hire additional staff over the next three months.

Interest:

Overall, the average interest rate paid by manufacturers has fallen to 8.37 percent a year from 9.3 percent in the last quarter and the highest rate at which a loan has been drawn is 13.5 percent. About 62 percent of respondents reported high borrowing rates.

Production costs:

Manufacturing costs as a percentage of sales for manufacturers in the study increased for 94 percent of respondents in the quarter. Reduced availability and high commodity prices, especially steel, increased transportation, logistics and freight costs, and an increase in crude oil and fuel prices have been the main contributors to rising production costs.

Other factors responsible for rising production costs include higher labor costs, high inventory costs and exchange rate fluctuations.

Staff availability:

Most sectors have sufficient labor force for their operations and are not faced with labor shortages in factories. While 81 percent of respondents said they have no problems with labor availability, the remaining 19 percent believe there is still a lack of skilled workers in their sector.

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