According to the FICCI Manufacturing Survey for July-September, the outlook appears to have improved markedly in Q2 after a weak Q1. The percentage of responders reporting increased output in the second quarter of 2021-22 was much above 50%, at roughly 61%. This was much higher than the same percentage in the second quarter of last year.
According to a FICCI statement, the assessment is reflected in order books, with 72 percent of respondents expecting a bigger number of orders in July-September 2021-22 than in April-June 2021-22. However, the poll found that a large proportion of respondents are seeing growing business and production costs.
For 80 percent of respondents in the poll, the cost of production as a percentage of sales grew in Q1 2021-22. This is significantly higher than the figure reported in Q4 2020-21, when 72% of respondents said their production costs had increased.
Expensive fixed expenses, greater overhead costs for ensuring safety measures, severe drop in volumes due to lockdown, lower capacity utilisation, high freight charges and other logistic costs, increased cost of raw materials, power costs, and high interest rates.
Further Key Takeaways
The latest quarterly survey evaluated manufacturers’ sentiments in eleven major sectors, including automotive, capital goods, cement and ceramics, chemicals, fertilisers and pharmaceuticals, electronics and electricals, metal and metal products, paper products, textiles, textile machinery, toys, and miscellaneous, for Q2 .
Nearly 300 manufacturing firms from both major and small businesses responded, with a total yearly revenue of over 2.7 lakh crore. According to the report, overall capacity utilisation in manufacturing was 72 percent in Q2 2021-22, indicating that manufacturing is recovering. The future investment prognosis, on the other hand, remains cautiously optimistic, with 32% of respondents planning capacity additions in the next six months.
The expense of doing business remains a source of concern for the sector, according to the report. High raw material prices, high finance costs, demand uncertainty, a scarcity of skilled labour and working capital, high logistics costs, low domestic and global demand, excess capacity due to a large volume of cheap imports into India, an unstable market, and a high power tariff are some of the major constraints affecting respondents’ expansion plans, according to the report.
The challenge with pharma on a manufacturing scale
With a 12 percent global market share in pharmaceutical formulations, India already has a strong position. The current API incentive plan is crucial in reviving part of this production and safeguarding the supply chain for our formulations business. The nation cannot afford a disruption in drug intermediate and API supplies, because if this occurs, the axe would fall not just on generics exports, but also on domestic pharmaceutical supplies.
However, replacing China in this area is difficult due to the scale they have already established around various items and their pricing philosophy, which allows them to slash prices by using depreciated facilities. If we can’t match Chinese scale and price, or the developed world’s strengths, then we won’t give any meaningful benefits or incentives for the developed world to really source from or outsource to India.
What does India’s industrial sector entail?
Manufacturing of machinery and equipment, electrical and metal products, cement, building and construction materials, rubber and plastic products, and automation technology items is a major growth area for the Indian economy.
What percentage of GDP does the manufacturing sector contribute?
The manufacturing sector in India currently contributes 16-17 percent to GDP and employs about 12% of the country’s workforce (as of 2014). According to research, every job produced in manufacturing has a multiplier effect of 2–3 jobs created in the services sector.