According to a quarterly poll conducted by FICCI, “The proportion of manufacturing units reporting an increase in output dropped to 10 percent during April-June 2020 from 15 percent in the previous quarter”.
The survey used over 300 manufacturing units from both large and SME segments with a combined annual turnover of over Rs 2.5 lakh crore as respondents. According to the survey’s findings, the automotive sector is the worst hit after the lockdown restriction easing phase, in terms of ongoing operations in the factories which is the result of impacted demand. Other sectors whose operations are worsley affected are leather and footwear, electronics and electricals & textiles machinery. About 90 per cent of respondents expect low or same production in April-June quarter of FY 2020-21.
About 85 per cent respondents said that they will keep hiring employees on hold for the next three months. FICCI said, “This presents a worrisome situation in the hiring scenario as compared to the previous quarter Q-4 of 2019-20, where 78 percent of the respondents were not in favour of hiring additional workforce”.
Just 8 percent of the respondents expect an increase in their exports for the first quarter of FY 2020-21 while only 10 percent expects exports to remain same as that of the same quarter last year.
The report said, ” In terms of back to business status, the survey noted that on an average, firms are operating depending on the sectors between 28 percent to 63 percent of their capacities with workforce deployment ranging from 33 percent to 57 percent. This assessment is also reflective in order books as 85 percent of the respondents in April-June 2020-21 expected lesser number of orders as against 54 percent in January-March 2019.”
The report disclosed that overall capacity utilisation in manufacturing declined to 61.5 percent in last quarter of FY 2019-20. About 22 per cent respondents said that they have plans for future investments in the next six months.
FICCI said, “High raw material prices, high cost of finance, 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 spread of coronavirus, excess capacities due to high volume of cheap imports into India, lack of financial assistance, unstable market, complex procedures for obtaining environmental clearances, high power tariff, are some of the major constraints which are affecting expansion plans of the respondents”.
It added, “Besides, 76 percent of the respondents expect either more or same level of inventory in April-June 2019, which is considerably less as compared to the previous quarters, where around 82 percent respondents expected either more or same level of inventory in Q-4 2019-20 and Q-3 2019-20. Average interest rate paid by the manufacturers has reduced slightly to 9.4 percent per annum as against 9.9 percent per annum during the last quarter and the highest rate remains as high as 14.5 percent. The recent cuts in repo rate by the RBI has not led to a consequential reduction in the lending rate as reported by 65 percent of the respondents. Based on expectations in different sectors, all the sectors are likely to register low growth in Q-1 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 outbreak”.