Hiring, production outlook to improve in manufacturing sector in Q3: Survey

Hiring and production outlook is expected to be better, while exports will be affected due to global demand factors in manufacturing sector in October-December this fiscal, said a Ficci survey.

Ficci's latest Quarterly Survey on Manufacturing presents a better outlook for hiring and production, the industry body said in a statement.

The survey portrays a better outlook for the manufacturing sector in Q-3 (October-December 2018-19) as the percentage respondents reporting higher output growth during the third quarter was 54% as compared to 47% in the same period previous fiscal.

The percentage of respondents reporting low production was only 13.5% in Q-3 2018-19 as compared to 15% in Q-3 of 2017-18.

Similarly, on hiring front the outlook for the sector seems to have slightly improved for near future. While in Q-3 of 2017-18, 70% respondents mentioned that they were not likely to hire additional workforce, this percentage has come down to 65% for Q-3 of 2018-19. It is expected that hiring scenario will improve further, noted the Survey.

The study assessed the sentiments of manufacturers for Q-3 this fiscal, for eleven major sectors namely automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics & electricals, leather and footwear, metal & metal products, paper products, textiles, textile machinery and tyre.

Responses have been drawn from over 300 manufacturing units from both large and SME segments with a combined annual turnover of over 2.2 lakh crore.

In terms of order books, 43% of the respondents in October-December 2018 are expecting higher number of orders as against 42%.

The outlook for exports is somewhat stable as 36% of the participants are expecting a rise in exports for Q-3 2018-19 and 32% are expecting exports to continue on same path as that of same quarter last year, observed the survey.

However, it said the rupee depreciation has not led to any significant increase in exports as 78%of the respondents reported that the exports were not affected much by rupee depreciation. Thereby, emphasizing that there were other global factors that are restricting growth of our exports.

The survey also said that the overall capacity utilisation in manufacturing remains low at 75% in Q3. The average capacity utilization for the manufacturing sector in the last few quarters has been around 75% only.

High raw material prices, cost of finance, uncertainty of demand, shortage of skilled labour, high imports, requirement of technology upgradation, excess capacities, delay in disbursements of state and central subsidies are some of the major constraints which are affecting expansion plans of the respondents.

In sectors like automotive, capital goods, leather and footwear and textiles machinery average capacity utilisation has either increased or remained almost same in Q3 of 2018-19 as compared to Q2 2018-19.

For sectors such as Chemicals, Fertilizers and Pharmaceuticals, Cement and Ceramics, Electronics & Electricals, Metals & Metal Products, Paper Products and Textiles the capacity utilisation has fallen in Q-3 2018-19 vis-a-vis Q-2 2018-19.

As much as 86%t of the respondents maintained either more or same level of inventory, which is slightly higher as compared to 83% in the previous quarter but less than 90% as was the case in Q-3 of 2017-18. This has been due to low domestic and export demand.

The cost of production as a percentage of sales for manufacturers in the survey has risen for 77% respondents. This is significantly higher than 62% for Q-3 of 2017-18. This is primarily due to increased cost of raw materials, wages, power cost, rising crude oil prices, increase in finance cost and rupee depreciation.