The proportion of manufacturing units reporting an increase in output dropped to 10 per cent during April-June 2020 from 15 per cent in the previous quarter, according to a quarterly poll by industry body Ficci.
The survey, which drew responses from over 300 manufacturing units from both large and SME segments with a combined annual turnover of over Rs 2.5 lakh crore, revealed that the automotive sector is the worst hit in terms of ongoing operations in the factories as per the demand and current orders post easing out of lockdown restrictions.
Other sectors where operations remain abysmally low are leather and footwear, electronics and electricals & textiles machinery.
Moreover, the percentage of respondents expecting low or same production is 90 per cent in April-June 2020-21 which was 85 per cent in the last quarter of 2019-20.
Hiring outlook for the manufacturing sector shows a bleak picture as 85 per cent of the respondents mentioned that they are not likely to hire additional workforce in the next three months.
"This presents a worrisome situation in the hiring scenario as compared to the previous quarter Q-4 of 2019-20, where 78 per cent of the respondents were not in favour of hiring additional workforce," Ficci said.
The outlook for exports is subdued and seems to be substantially affected due to COVID outbreak and other restrictions in place, as only 8 per cent of the participants are expecting a rise in their exports for the first quarter of 2020-21 and 10 per cent are expecting exports to continue to be on same path as that of same quarter last year.
The survey also assessed if there is any change in sourcing strategies of the manufacturers to reduce dependence on one country. The results showed that in certain areas like automotive, textiles machinery and leather/footwear firms are looking at alternative sources of inputs/raw materials.
In terms of back to business status, the survey noted that on an average, firms are operating depending on the sectors between 28 per cent to 63 per cent of their capacities with workforce deployment ranging from 33 per cent to 57 per cent.
This assessment is also reflective in order books as 85 per cent of the respondents in April-June 2020-21 expected lesser number of orders as against 54 per cent in January-March 2019, said Ficci.
The industry body's latest quarterly survey assessed the sentiments of manufacturers for Q-1 (April-June 2020-21) for 12 major sectors namely automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics & electricals, leather and footwear, medical devices, metal & metal products, paper products, textiles, textile machinery, etc.
The survey found that overall capacity utilisation in manufacturing has witnessed a decline to 61.5 per cent in January-March (Q4) 2019-20 as compared to 76 per cent in Q-3 2019-20.
The future investment outlook looks subdued as only 22 per cent respondents reported plans for capacity additions for the next six months as compared to 28 per cent in the previous quarter.
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, Ficci said.
Besides, 76 per cent 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 per cent 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 per cent per annum as against 9.9 per cent per annum during the last quarter and the highest rate remains as high as 14.5 per cent. The recent cuts in repo rate by the RBI has not led to a consequential reduction in the lending rate as reported by 65 per cent of the respondents, Ficci said.
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, Ficci said.
The cost of production as a percentage of sales for manufacturers in the survey has risen for 64 per cent respondents. This is considerably higher than that reported in Q3 2019-20, where 55 per cent respondents recorded increase in their production costs.
Industry respondents have attributed the hike in production costs primarily to high fixed costs, higher overhead costs for ensuring safety protocols, drastic reduction in volumes due to lockdown, lower capacity utilization, high freight charges and other logistic costs, increased cost of raw materials, power cost and high interest rates.
Sectors like textiles and textiles machinery have only one third of the total labour force engaged in the operations and are hence facing labour shortage. Similarly, automotive and leather & footwear have also witnessed around 35 per cent workers attendance at factories.