Capacity utilisation stagnant in Indian manufacturing

Things may be getting a tad better for Make in India even as capacity utilization of factories remain low, a survey by The Federation of Indian Chambers of Commerce and Industry (FICCI) has found.

In the December quarter of 2018/2019, there was encouraging news on the output as well as the order books part.

The industry body's quarterly survey assessed "the sentiments of manufacturers" across 11 manufacturing sectors -- automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics and electricals, leather and footwear, metal and metal products, paper products, textiles, textile machinery and tyre. About 300 manufacturing units, of all sizes, are polled.  

FICCI reported that the proportion of respondents reporting higher output growth during the October-December quarter of 2018/2019 was 54 per cent compared to 47 per cent in the year-ago period. About 43 per cent of the respondents in the December 2018 quarter expected higher orders as against 42 per cent in the year-ago.

Interestingly, overall capacity utilisation of the sector trended around 75 per cent - the industry body noted that utilization in India's manufacturing sector hasn't really changed in many quarters. This reflects a poor demand environment.

"The future investment outlook, though moderate, is slightly better than what was perceived in Q-3 of 2017/2018. 47 per cent respondents reported plans for capacity additions for the next six months (46 per cent in Q-3 of 2017/2018)," the survey noted. "High raw material prices, high cost of finance, uncertainty of demand, shortage of skilled labor, 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," it added.

The body said that in sectors such as automotive, capital goods, leather, and footwear and textiles machinery, the average capacity utilisation has either increased or remained the same in the December quarter when compared to the September quarter of 2018. In sectors such as Chemicals, Fertilisers and Pharmaceuticals, Cement and Ceramics, Electronics & Electricals, Metals & Metal Products, Paper Products and Textiles the capacity utilization has fallen.

In line with higher production and order books, manufacturers were slightly more positive on the employment outlook. The survey stated that while in the December quarter of 2017/2018, about 70 per cent respondents mentioned that they were not likely to hire additional workforce, this percentage has slid to 65 per cent in December 2018/2019.