Manufacturing sentiments, domestic demand up in Q1 FY25, notes FICCI survey

Manufacturing sentiments in India have shown an improvement in the first quarter of the financial year 2024-25, according to FICCI's quarterly survey on manufacturing.

The survey reveals that compared to the previous year, where 57% of respondents reported increased production levels, approximately 78% of respondents in the current Q1 FY 2024-25 expect either higher or unchanged production levels. The survey also highlights optimism in domestic demand conditions for Q1 2024-25, which is reflected in the order books. Around 67% of respondents expect a higher number of orders compared to the previous quarter.

The survey assessed sentiments across eight major sectors: Automotive & auto Components, capital Goods & machine tools, cement, chemicals, fertilizers & pharmaceuticals, electronics & electricals, metal & metal products, and textiles, apparels & technical textiles. Responses were gathered from manufacturing units of both large and SME segments, with a combined annual turnover exceeding Rs. 3 lakh crore.

FICCI reported that the current average capacity utilization in manufacturing is close to 75%, reflecting sustained economic activity, slightly higher than in previous surveys. The investment outlook is also positive, with 41% of respondents planning investments and expansions in the next six months.

However, some respondents cited challenges such as constrained working capital due to high interest rates, delays in customer payments, difficulties in acquiring skilled labor, and market challenges including cheaper imports and subsidized products from certain countries. Logistical problems also pose restrictions on expansion efforts.

The survey noted that 86% of respondents had either increased or maintained inventory levels in Q4 2023-24, and about 83% expect higher or unchanged inventory levels in Q1 2024-25. In exports, 56% of respondents reported increased exports in Q4 FY 2024, and around 70% expect higher exports in Q1 2024-25 compared to the previous year's similar quarters.

The hiring outlook remains positive, with nearly 50% of respondents planning to hire additional workforce in the next three months. The average interest rate paid by manufacturers is reported to be 9.8%. Over 80% of respondents have reported sufficient availability of funds from banks for working capital or long-term capital.

According to the survey, the production costs for manufacturers in Q4 FY 2024 have remained high, with nearly 60% respondents reporting an increase in production costs as a percentage of sales, slightly less than in the previous quarter.

Factors contributing to higher production costs include increased prices for raw materials such as iron, steel, rubber, carbon, and chemicals (e.g., Caustic Soda, Carbon Di-Sulphide), rising wages, increased utility and energy costs, higher scrap prices, and greater logistics expenses.

FICCI stated that most sectors do not face a shortage of labor, as 83% of respondents reported no issues with workforce availability. However, 17 %noted a lack of skilled labour in their sector, indicating a need for increased efforts at both government and industry levels.