The outlook for India’s manufacturing sector has improved in the October-December quarter but the cost of doing business remains a cause for concern for the sector while the hiring outlook remains subdued, according to a survey released by FICCI.

The survey indicated that the capacity utilisation range in manufacturing is pegged in the range of 65-70 per cent reflecting sustained economic activity in the sector. The industry chamber added that manufacturers are looking forward to the budget to enhance growth and investments in the sector.

FICCI’s latest quarterly survey assessed the performance and sentiments of manufacturers in the December quarter for twelve sectors including automotive, capital goods, cement, chemicals, fertilisers and pharmaceuticals, electronics & electricals, medical devices, metal & metal products, paper products, textiles and textiles machinery.

The survey is based on responses from over 300 manufacturing units from large and SME segments with a combined annual turnover of over ₹2.7-lakh crore.

“The percentage of respondents reporting higher production in the third quarter of FY 2021-22 (October-December) was around 63 per cent. This was almost double than the last year’s third quarter (around 33 per cent). This assessment is also reflective in order books as 61 per cent of the respondents in October-December 2021-22 had a higher number of orders vis-à-vis July-September 2021-22,” FICCI stated.

But the respondents raised concerns around the cost of doing business and listed out high raw material prices, high power tariff, high cost of finance, the uncertainty of demand, shortage of working capital, high logistics cost and low domestic and global demand due to supply chain disruptions among the major constraints, it added. 

Rise in exports

About 50 per cent of the respondents said they are expecting a rise in exports in the third quarter of the fiscal year compared to the corresponding quarter in the previous fiscal.

“Hiring outlook for the manufacturing sector remains subdued as around 75 per cent of the respondents mentioned that they are not likely to hire additional workforce in the next three months,” FICCI added. Nearly 81 per cent of the manufacturers said that cost of production as a percentage of sales has risen.

“High raw material prices, increased transportation and logistics cost, and rise in the prices of diesel, LPG, natural gas, power, and fuel has been the main contributor of increasing cost of production. Other factors affecting the cost of production are increasing labour cost, short supply of raw material, high cost of carrying inventory, and fluctuation in the foreign exchange rate,” FICCI added.