9 in 10 Indian manufacturers expect higher production this quarter — domestic demand a key highlight: FICCI

India’s manufacturing sector will witness sustained growth in the January to March 2024 quarter of the fiscal, a quarterly survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) said on February 12.

As per the survey of over 400 manufacturers across 10 major sectors, around 87% respondents expect either higher or the same level of production in the current quarter of the 2023-24 fiscal, compared to 73% respondents in the preceding fiscal.

Anant Goenka, VP, FICCI, Vice Chairman of RPG Group, said, “Electronics is one segment that is seeing continuous, very high levels of growth. You have players around the world coming in and investing, India is becoming the China plus one location for the sector. So clearly, there is great upside. And similarly for machine tools as well, with more and more manufacturing coming into India, machine tools is also seeing positivity."

He added, "From a private sector point of view, we are seeing continuous positive growth, but again, it is fairly stable to positive and therefore I would agree with the moderate kind of growth that we are seeing. We have interviewed about 400 plus units, which covers about ₹3.5 lakh crore worth of revenues. And I'd say that what we are seeing on the ground is matching fairly well with the numbers that have come out from the survey.”

FICCI surveyed manufacturing units in both large and SME segments with a combined annual turnover of over ₹3.4 lakh crore in the automotive and auto components, capital goods and construction equipment, chemicals, fertilisers and pharmaceuticals, electronics and electricals, FMCG, machine tools, metal and metal products, paper and paper products, textiles, apparels and technical textiles, and miscellaneous sectors.

“This upbeat assessment of Indian manufacturing is also reflected in higher order books. 85% of the respondents in the current Q4 2023-24 are expecting a higher number of orders compared to the previous quarter. Domestic demand conditions show optimism in Q4 2023-24,” the survey said.

FICCI has found that the existing average capacity utilisation in manufacturing is around 73%, similar to previous surveys. The future investment outlook looks steady with over 50% of respondents indicating plans for investments and expansions in the next six months, it added.

Among challenges were availability of raw materials and their escalating prices, uncertainty in global demand, shortage of skilled labour, market volatility, increased power costs, unutilised capacities, and high bank interest rates, among others. These constraints, the respondents said, are affecting their expansion plans.

Production cost seems to have increased for manufacturers in the quarter ended December as the cost of production as a percentage of sales for manufacturers in the survey has risen for 67% respondents — which is slightly more than what was reported in the survey for the previous quarter.

The rise in prices of raw material, utilities, labour cost, freight charges, increase in borrowing cost due to high interest rate and supply chain disruption have been the main contributors to increasing cost of production, the survey said. Other factors responsible for escalating production costs include high cost of carrying inventory, etc.

In terms of exports, about 31% respondents reported higher exports in the previous and current quarters and over 40% of the respondents expect their exports to be higher compared to previous year’s similar quarters.

Meanwhile, given the shortage of labour, the hiring outlook remains stable as close to 40% of the respondents are looking at hiring additional workforce in the next three months.

Manish Sharma, Head of FICCI White Goods, Electronics Panel, Chairman of Panasonic in India & South Asia, said, “As an offshoot of the recent policies, air conditioners happens to be one of the industries which generates employment at large, essentially because in the entire value chain starting from say design to manufacturing to installations, we need a lot of engineers to install and subsequently maintain those products. So air conditioners happen to be one of the largest employment generation products.”