Inflation-led cost pressures seem to be abating while growth momentum is expected to sustain in the fourth quarter of FY23 backed by expectations of higher production levels in the manufacturing sectors.

According to the FICCI’s latest quarterly survey on manufacturing, after revival in growth witnessed in FY22, momentum of growth has continued for the subsequent quarters of FY23 with some temporary effect of global slowdown on Indian manufacturing.

Higher production

In the December quarter, 58 per cent of the respondents reported higher production levels. Also, nearly 50 per cent of the respondents expect a higher level of production in March quarter of FY23 with an average increase in production in double-digits. “This assessment is also reflective in order books as 52 per cent of the respondents in third quarter of FY23 have had higher number of orders and demand conditions continue to be optimistic in the fourth quarter,” the survey finding revealed.

The survey noted that there seems to be some softening of cost pressures in the manufacturing sector. “The cost of production as a percentage of sales for manufacturers in the survey has risen in the third quarter for 73 per cent respondents, which is lower than reported in previous quarter”it added.

FICCI’s latest quarterly survey assessed the sentiments of manufacturers for March quarter of FY 23 for 11 major sectors including automobile, capital goods, cement, chemicals and pharmaceuticals, electronics, machine tools, metal, paper, petrochemicals & fertilizers, textiles and apparels among others. Over 400 manufacturing units from both large and SME segments with a combined annual turnover of over ₹10 lakh crores participated in this survey.

The existing average capacity utilisation of the respondents was pegged at around 75 per cent reflecting a sustained economic activity in the sector. The future investment outlook has also improved as compared to previous quarter as over 47 per cent respondents reported plans for investments and expansions in the coming six months.

Global uncertainty

“However, global economic uncertainty caused by the Russia-Ukraine war and increasing cases of various mutations of Covid virus in other countries continue added to volatilities in supply chain and demand,” the survey noted.

Respondent stated that challenges that are affecting their expansion plans included increased cost of finance, cumbersome regulations and clearances, high logistics cost , low global demand, high volume of cheap imports into India, shortage of skilled labor and highly volatile prices of certain metals among others.

“Nearly 87 per cent of the respondents had either more or same level of inventory in December quarter compared to previous quarter. 90 per cent of the respondents expect inventory levels to remain same or increase in March quarter,” the statement added.

Though, hiring outlook was positive among respondents, it remains below potential as only 32 per cent of the respondents were looking at hiring additional workforce in the next three months.

“Based on expectations of respondent, sectors such as auto, capital goods, cement, electronics, petrochemicals & fertilizers sectors are poised to see a strong growth. Rest all the sectors are expected to register moderate to low growth in fourth quarter of FY 2022-23,”