Manufacturers expect higher production in Q2: Ficci survey

With the government taking number of reform measures, manufacturers expect higher production in the second quarter (July-September) of FY14, according to the Quarterly Survey on Manufacturing Sector by the Federation of Indian Chambers of Commerce and Industry.

Forty-seven per cent of the respondents expect production to rise in the second quarter against 37 per cent in the previous quarter and 44 per cent in the second quarter of FY13.

The Ficci survey, which covered 276 units, also revealed that those expecting a fall in their production decreased to 16 per cent in the second quarter from 26 per cent in the first quarter.

The survey showed there could be a visible growth in textiles, cement and leather sectors in the second quarter.

If the results of the survey translate into reality, it will give a breather to the government which is trying hard to put the economy on track.

However, there were signs of worry in the survey as well.

First of all, 85 per cent of the respondents reported that the depreciation in rupee has taken a toll on the input costs of the manufacturers.

“On an average, rupee depreciation has increased input cost by 11 per cent for the manufacturers,” said Ficci.

The rupee closed at 61.10 against the dollar on Friday.

The demand is still to perk up as 32 per cent respondents reported higher order books for July-September this year against 31-37 per cent in the previous quarter.

The government has been saying that the Reserve Bank of India will take back its liquidity choking measures if the rupee stabilises.

However, the rupee’s value has been depreciating against the dollar, and hence it might take time for RBI to reverse its stance, said analysts.

The survey showed that sectors such as automotive, capital goods, paper and food could still witness a subdued growth in the second quarter of FY14.

Also, 39

per cent of respondents have no plans for capacity addition for the next two quarters.

While sectors such as chemicals, textiles, leather and footwear may witness an improvement in capacity utilisation in July-September 2013, others such as metals, food products and automotive are likely to see deceleration on this front, showed the survey.

Around 49 per cent of manufacturers were of the view that power deficiency could act as a major constraint for manufacturing growth.

Further, 37 per cent respondents were dependent on captive power for their manufacturing units. On the export front, demand in international markets such as the UK and Japan could lead to higher exports in the second quarter this year. It also stated the growth in exports has bottomed out.

“Exports may not fall further as the proportion of respondents expecting reduction in exports has fallen from 32 per cent in Q1 to 22 per cent in Q2,” said Ficci.

In the first quarter, India’s merchandise exports grew only in the month of April, and that too by just 1.68 per cent to $24.16 billion, year-on-year (y-o-y).

May and June saw contraction by 1.11 per cent and 4.56 per cent to $24.50 billion and $23.78 billion, respectively, on a y-o-y basis.

Overall, exports fell 1.41 per cent to $72.45 billion in the first quarter of the current financial year against $73.49 billion in the same period in FY13.

The manufacturing output grew at a sluggish pace in first two months of the first quarter as it expanded only 2.8 per cent in April and contracted 2 per cent in May.

In total, manufacturing production rose just 0.1 per cent in April-May of FY14.

The official numbers for June would be released on August 12.

However, eight core industries have shown a slow growth of 0.1 per cent in June, which has almost 38 per cent share in the Index of Industrial Production, which measures the industrial output.