Industrial activity may have tottered in the first quarter of FY21 when there was a complete lockdown, but it has picked up in the subsequent quarters and has been quite strong since Q3 that fiscal. That is the key finding of the order books, inventories and capacity utilisation survey (OBICUS), conducted by the Reserve Bank of India covering 800 manufacturing companies.

While the manufacturing activity is good, there could be some slowdown in demand. New order book of companies recorded a decline in Q3 FY23 and their inventory levels registered an increase. Difficult external environment with the threat of recession in many advanced economies and slowing domestic demand due to RBI’s aggressive rate hikes could have impacted new orders.

Brisk activity

Capacity utilisation at manufacturing facilities was at a robust 74.3 per cent in Q3 FY23, up from 74 per cent in Q2. Utilisation has held above the 72-per-cent mark since Q3 FY22, indicating that the manufacturing activity is taking place at a brisk pace. These high levels also mean that companies will have to go for capital investments to increase capacities if demand increases further.

Utilisation had hit a low of 47.3 per cent in Q1 FY21 when most manufacturing units cut down production. The pre-pandemic level (Q1 FY20) was 73.6 per cent.

New order growth

In Q3 FY23, growth in order book reduced to 8.4 per cent indicating a slowdown in demand in the manufacturing sector.

While the growth was negative between Q2 FY20 and Q1 FY21, the order book grew consecutively in the next three quarters till Q1 FY22, registering a staggering 105 per cent growth that quarter.

The average amount of new order books has dipped from its peak of ₹307.9 crore in Q2 FY23 to ₹212.2 crore in the following quarter. However the Q3 levels are much higher than the pandemic and pre-pandemic levels.

Inventory levels

The average inventory level of manufacturing companies increased slightly by 2.3 per cent to ₹519.9 crore in Q3 FY23 from ₹508.2 crore the previous quarter. The inventory levels were the highest during the pandemic in Q4 FY20 at ₹609.9 crore.

The levels were averaging between ₹400 crore and ₹500 crore till they peaked again in Q1 last fiscal to ₹591.8 crore.