A majority of domestic manufacturers are confident about the sustained growth momentum of the Indian economy for the next six to nine months despite global headwinds such as supply chain disruptions due to the Ukraine war and the slowdown of major economies due to rising interest rates, according to an industry survey of 300 manufacturing units with a combined turnover of ₹2.80 lakh crore.
“The growth momentum picked up by the manufacturing sector in the last few months is likely to be sustained for the next six to nine months,” the Federation of Indian Chambers of Commerce and Industry (Ficci) said on Monday, citing its quarterly survey of manufacturing units.
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After experiencing a revival of the Indian economy in 2021-22, the momentum of growth continued in subsequent quarters — Q1 (April-June 2022-23) and Q2 (July-Sept 2022-23) with over 61% of respondents reporting higher production levels in the second quarter of FY23, it said. The buoyancy is also supported by robust order books reported by more than half (54%) of the respondents in Q2 of FY23, it added.
The survey outcome supports the latest Purchasing Managers’ Index (PMI) for manufacturing which was at 55.3 for October, a sequential increase (55.1 in September), signifying the manufacturing sector’s resilience amid a global economic slowdown. A PMI value greater than 50 signifies expansion in economic activity in these sectors.
The survey results are in line with global assessments about India in 2022 and 2023 when major global economies such as China, the European Union area and the US, are expected to slow down.
India Ratings and Research (Ind-Ra) in its macroeconomic analysis on Monday said that “amid the ongoing global turmoil, India appears to be a shining spot” and will be G20’s fastest-growing economy by Financial Year 2026. Its optimism lies in India’s favourable demographics and its successful implementation of reforms and other measures initiated during the last couple of years.
The survey covered 10 major manufacturing sectors — automotive and auto components; capital goods; cement; chemicals, fertilizers and pharmaceuticals; electronics; machine tools; metal and metal products; paper products; textiles; and textile machinery. Respondents include large, small, and medium enterprises.
Respondents reported average capacity utilisation of over 70% reflecting a sustained economic activity with paper products, textile machinery and automotive and auto components reporting capacity utilisation of over 90%. It has been below the average (70%) for electronics, machine tools, textiles and metals and metal products, according to the survey. Nearly 40% of the respondents reported plans to add capacity in the next six months by over 15% on average signifying sustained demand.
To be sure, the units surveyed are facing problems due to global uncertainties and supply-chain disruptions mainly due to the Ukraine war and high fuel prices. While global developments are beyond the control of the Indian government, the survey said it may resolve several domestic issues to further unlock the potential of the manufacturing industry.
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“High raw material prices, increased cost of finance, cumbersome regulations and clearances, shortage of working capital, high logistics cost due to rising fuel prices and blocked shipping lanes, low domestic and global demand, excess capacities due to high volume of cheap imports into India, unstable market, high power tariff, shortage of skilled labour, highly volatile prices of certain metals etc. and other supply chain disruptions are some of the major constraints which are affecting expansion plans of the respondents,” it said.
Some of these issues lead to an increase in production costs. “The cost of production as a percentage of sales for manufacturers in the survey has risen for 94% respondents in the quarter,” it said. Reduced availability and high raw material prices especially that of steel, increased transportation, logistics and freight cost, and rise in the prices of crude oil and fuel have been the main contributors to increasing cost of production, it said. Other factors responsible for escalating production costs include enhanced labour costs, high cost of carrying inventory, and fluctuation in the foreign exchange rate, it added.
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