Manufacturing sector to rebound in Q4FY21; investment outlook improves

Industry chamber FICCI's latest quarterly survey on manufacturing points to a rebound of manufacturing sector growth in the current quarter of financial year 2020-21. Sectors like medical devices, chemicals, fertilisers, pharmaceuticals, textile machinery, electronics and electricals, capital goods and metal and metal products are likely to have registered strong growth in the previous quarter (Q-3 2020-21), it said.

The survey assessed the performance of manufacturers for Q3 (October-December 2020-21) and the sentiments for Q4 for twelve major sectors including automotive, capital goods, cement, chemicals, pharmaceuticals, electronics, etc. Responses were drawn from over 300 manufacturing units from both large and SME segments with a combined annual turnover of around Rs 5.3 lakh crore.

The survey said the percentage of respondents reporting higher production in Q3 of 2020-21 had increased vis-a-vis Q2 of 2020-21. "The proportion of respondents reporting higher output during October-December 2020 rose to 33 percent, as compared to 24 percent in Q2 of 2020-21. The percentage of respondents expecting low or same production is 67 percent in Q3 2020-21 which was 74 percent in Q2 2020-21. The percentage of respondents expecting increase in exports has increased substantially to 29 percent when compared to previous quarters during lockdown period, wherein 24 percent respondents were expecting a rise in exports. Hiring outlook for the sector improved, with 37 percent (against 20 percent in previous quarter) planning to hire additional workforce."

According to the survey, the overall capacity utilisation in manufacturing witnessed a rise to 74 percent in Q3 as compared to 65 percent in previous quarter.  The future investment outlook was slightly better as 30 percent of respondents reported plans for capacity additions for the next six months as compared to 18 percent in previous quarter.

High raw material prices, high cost of finance, shortage of skilled labor and working capital, high logistics cost, low domestic and global demand due to imposition of lockdown across all countries to contain spread of coronavirus, excess capacities due to high volume of cheap imports into India, lack of financial assistance, uncertain demand scenario across globe, complex procedures for obtaining environmental clearances, high power tariff, are some of the major constraints which were highlighted.

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