Manufacturing sector operates 28-63% in Q1, says Ficci Survey

A quarterly survey on the manufacturing sector conducted by industry body FICCI reveals a bleak status for the first quarter (April-June) of 2020-21 as compared to the previous few quarters of 2019. The percentage of respondents reporting higher production in the first quarter of FY21 has fallen significantly as against the fourth quarter of 2019-20.

In terms of back to business status, FICCI survey noted that on average, firms are operating depending on the sectors between 28% and 63% of their capacities with workforce deployment ranging from 33 to 57%, the survey reveals.

The proportion of respondents reporting higher output during April-June 2020 has fallen to just 10% as compared to 15% in Q4 of FY20. The percentage of respondents expecting low or the same production is 90% in Q1 of FY21 which was 85% in Q4 of FY20. This assessment is also reflective in order books as 85% of the respondents in April-June 2020-21 expected a lesser number of orders as against 54% in January-March 2019.

FICCI surveyed over 300 manufacturing units from both large and SME segments with a combined annual turnover of over Rs 2.5 lakh crore across 12 major sectors including automotive, capital goods, cement, chemicals, pharmaceuticals, electronics, leather, medical devices, metal, and textiles among others.

The overall capacity utilisation in manufacturing has witnessed a decline to 61.5% in Q4 2019-20 as compared to 76% in Q3 of the same year. The future investment outlook looks subdued as only 22% of respondents reported plans for capacity additions for the next six months as compared to 28% in the previous quarter. High raw material prices, high cost of finance, the uncertainty of demand, shortage of skilled labour and working capital, high logistics cost, low domestic and global demand due to imposition of lockdown across all countries to contain the spread of coronavirus, excess capacities due to high volume of cheap imports into India, lack of financial assistance, unstable market, are some of the major constraints which are affecting expansion plans of the respondents.

This assessment is also reflective in order books as 85% of the respondents in April-June 2020-21 expected a lesser number of orders as against 54% in January-March 2019.

The outlook for exports is subdued and seems to be substantially affected due to the Covid-19 outbreak and other restrictions in place, as only 8% of the participants are expecting a rise in their exports for Q1.

The hiring outlook for the sector shows a bleak future as 85% of the respondents mentioned that they are not likely to hire additional workforce in the next three months. In the Q4 of last fiscal, only 78% were not in favour of hiring.

The average interest rate paid by the manufacturers has reduced slightly to 9.4% per annum as against 9.9% per annum during the last quarter and the highest rate remains as high as 14.5%.

Based on expectations in different sectors, all the sectors are likely to register low growth in Q1 of 2020-21. The primary reason for such depressed expectations seems to be the imposition of lockdown, restricted exports and other guidelines in place as a response towards Covid-19 outbreak.

The automotive sector is the worst hit in terms of ongoing operations in the factories as per the demand and current orders post easing out of lockdown restrictions.