Mech engineering industry to witness growth in 2021

The mechanical engineering industry in India is likely to witness growth during this year backed by a steady improvement both in terms of capacity utilisation and in terms of its order position.

According to the 9th edition of the VDMA Business Climate Survey conducted recently, the industry which witnessed “significant” recovery in the first quarter of this year, is likely to register growth in the following months, as large declines were recorded in the previous year. However, the current wave of infections is leading to a slowdown in economic activity, which will be reflected in the further recovery.

Recovery

The survey saw more than 100 participants across all sectors of the mechanical engineering industry sharing evaluations regarding their company’s business and the situation of their most important customer industries.

“Almost 91 per cent stated that the situation is either good or satisfactory. The adverse impact of Covid-19 is still evident, but the business situation for the firms has improved significantly since autumn 2020 and especially since spring 2020. Moreover, the current situation of capacity utilisation of said companies developed positively. The capacity utilisation is at a level that was last reached more than two years ago,” the survey said.

Regarding the current stock of orders, nearly half of the companies say that orders were above normal indicating an improving business situation.

In autumn 2020, 49 per cent of the member companies felt that their current stock of orders was below normal. But in spring 2021, only 17 per cent felt so. The decrease in negative sentiments was mainly because of the pent-up demand and the ensuing festive season, the report said.

On the revenue front, average revenue dropped by nine per cent in 2020, however, it is expected to increase by 15 per cent in 2021.

Positive outlook

The survey further suggested that the economic outlook was optimistic given that only 14 per cent of the respondents expect their situation to worsen during the next six months while a good 55 per cent expect an improving situation. The remaining, however, believe that the situation would not change much.

Over the months, there were several relaxations and industrial activities have begun to inch towards normalcy until the Covid-19 setback in India which has again resulted in the decline of business. The situation is improving but it will take time.

“The road to recovery is slow, but the effort is sustained. Due to supply chain disruption, many industries are facing difficulties in receiving and executing orders due to unavailability of regular raw material supply and they are facing problems on the cash flow end due to cash flow cycles being longer and highly disrupted over the course of this pandemic. This issue could prolong on account of the third wave,” the survey report said.

However, despite the unprecedented circumstances due to Covid-19, 24 per cent of the industry planned to hire new employees over the next six months while another 66 per cent plan to hold on to their current workforce. Only around 10 per cent plan to reduce employment.

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