Higher production and a better growth outlook have instilled confidence in manufacturers in the October-December quarter of 2018-19 for ramping up hiring, according to a survey of the Federation of Indian Chambers of Commerce & Industry (Ficci).
The latest quarterly survey on manufacturing portrays a better outlook for the sector in Q3. The proportion of respondents reporting higher output growth in the quarter was 54 per cent, higher than the 47 per cent respondents in the same quarter of the preceding fiscal year.
On the other hand, the percentage of respondents reporting low production dropped marginally to 13.5 per cent, as compared to 15 per cent in the same period of the previous year. As a result, the outlook for the sector slightly improved on the hiring front. While in Q3 of 2017-18, 70 per cent of respondents mentioned that they were not likely to hire additional workforce, this has come down to 65 per cent for Q3 of the current financial year. Going forward it is expected that hiring scenario will improve further, noted the survey.
Responses have been drawn from over 300 manufacturing units from both the large and small and medium size segments with a combined annual turnover of over Rs 2.2 trillion, Ficci said. Firms from 11 major sectors, including automobiles, capital goods, chemicals, pharmaceuticals, among others, said they expect order books to remain stable. While 43 of the firms expect higher number of orders, the figure was 42 per cent in the similar period of the previous financial year.
As high as 77 per cent of manufacturers said their cost of production as a percentage of sales has risen, up from 62 per cent. Increased cost of raw materials, such as crude and operational costs such as power and interests have been mostly blamed. In particular, the average interest rates paid by the manufacturers has risen to 10.6 per cent, against 10.2 per cent during the same quarter of last year. Despite the recent cut in repo rate by the Reserve Bank of India, the highest rate of interest remains as high as 17 per cent, a Ficci official said.
Exports remain stuck
However, only a third of all respondents expect a rise in their exports. In the latest survey, global factors such as increasing protectionism have resulted in only 36 per cent of participants expecting a rise in exports for the third quarter of 2018-19, while 32 per cent expect the same growth as the last year. At the same time, rupee depreciation has not led to any significant increase, firms said.
Overall capacity utilisation in manufacturing also remains low at 75 per cent in the quarter in question, same as the last few quarters, according to the survey. As a result, Ficci said future investment outlook, is slightly better at 47 per cent, up from 46 per cent in the previous year. High raw material prices, high cost of finance, uncertainty of demand, shortage of skilled labour, high imports, requirement of technology upgradation, excess capacities, delay in disbursements of state and central subsidies are some of the major constraints that are affecting expansion plans, respondents said.
In sectors such as automotive, capital goods, leather and footwear and textiles machinery average capacity utilisation has either increased or remained almost same in the latest quarter. Based on expectations in different sectors, the survey noted high growth may be seen in capital goods, textiles and automotive sectors.