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Business News/ Economy / India poised for sustained manufacturing growth in second half FY24: Ficci

India poised for sustained manufacturing growth in second half FY24: Ficci

India's rural demand, however, remains subdued, largely because of an uneven monsoon season which came to an end in September

During Q2 FY24, India's manufacturing growth accelerated sequentially.Premium
During Q2 FY24, India's manufacturing growth accelerated sequentially.

New Delhi: The manufacturing sector expects to see sustained economic activity and higher investments in the remaining two quarters of this financial year, anticipating improved demand, with more than half of the manufacturers surveyed by Ficci reporting investment and expansion plans, the industry body said on Monday.

Ficci’s latest quarterly survey on manufacturing said the growth momentum accelerated in Q2, FY24, and is likely to continue for the subsequent quarters of FY 2023-24 even amid a global slowdown.

However, the absence of robust demand remains the major constraint to the country’s manufacturing potential in the coming quarters, it added.

In its latest quarterly survey on manufacturing, Ficci said about three-fourths of businesses in the manufacturing sector surveyed by the industry body expect higher output in the September quarter, compared to a little over half the firms achieving higher output in the previous quarter.

The survey, which covered 380 manufacturers that account for about 4.8 trillion in sales, showed a robust 74% capacity utilization and improved future investment outlook during Q2.

“In the Q1 April-June 2023-24, 57% of the respondents reported higher production levels. Further, over 79% of the respondents shared a higher level of production in Q2 July-September 2023-24," the survey said.

About 80% of the survey respondents said they had a higher number of orders during Q2, due to the anticipation of higher demand during the quarter.

However, demand also remained a major limiting factor in realizing the manufacturing sector’s true potential.

Global trade has slowed down due to persistent inflation and tighter monetary policy stance adopted by major global economies. Conflicts in Ukraine and Israel have sent oil prices higher, not only increasing inflation, but also resulting in higher import bills, leading to higher fiscal deficit and balance of trade challenges.

India’s domestic demand, especially in the rural regions, has also remained weak largely on the back of uneven monsoons.

Over 40% respondents in the Ficci survey highlighted the tepid demand as a significant constraint to manufacturing.

“Whether it is domestic demand or exports, this remains a major limiting factor," the survey said.

“Some other constraints, though not major ones, are high raw material prices, increased cost of finance, logistics, and other supply chain disruptions are some of the major constraints which are affecting expansion plans of the respondents," it added.

Overall, the survey assessed the performance of manufacturers in ten major sectors. These included sectors like automotive & auto components, capital goods & construction equipment, cement, chemicals fertilisers and pharmaceuticals, electronics & white goods, machine tools, metal & metal products, textiles, apparels & technical textiles, paper, and miscellaneous.

Among the various sectors, paper and paper products industry reported the highest capacity utilisation at 90% during Q2, FY24, while chemicals, fertilisers and petrochemicals reported 68% capacity utilisation, the lowest amongst the lot.

Sectors like automotive and auto components, cement and capital goods and construction equipment, key indicators of economic growth, reported 74%, 80% and 77% capacity utilisation, respectively, during Q2, FY24.

The Reserve Bank of India (RBI) has forecast Q1FY24 real GDP growth at 7.8% and full-year growth at 6.5%. Others like rating agency Moody’s Investor Services have retained India’s economic growth at 6.7% for calendar year 2023 stating the country has shown remarkable resilience amid a global slowdown buoyed by solid domestic demand.

Interestingly, while demand in urban areas has shown growth, rural demand has been tepid due to the uneven monsoons and slow recovery after the pandemic. However, this is expected to improve in the coming quarters.

“Consumption growth post pandemic has been mixed, with slow recovery in rural demand," Morgan Stanley said in a recent report.

“In our view, this reflects a shift in consumption towards services, while (the) share of goods in wallet share has moderated, and low income segments / rural households’ balance sheets are in the process of healing," it added.

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Rhik Kundu
Rhik writes about the Indian economy and its crucial indicators. He is constantly navigating corporates, decoding policies, and dabbling with everything in between.
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Published: 13 Nov 2023, 05:38 PM IST
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