India is poised for sustained manufacturing growth in the second half of the fiscal year 2024, with robust demand likely to drive economic activities in the sector, according to a Ficci survey released on Monday.
The industry body’s survey highlighted optimism for the third and fourth quarters despite the challenges of a global economic slowdown. Over half the survey respondents are planning increased investments and expansions, reflecting confidence in the future.
While India’s manufacturing growth accelerated sequentially during Q2 FY24 (July-September 2023), a lack of robust demand remains the major constraint to the country’s manufacturing potential amid a global slowdown, according to the survey findings.
The Ficci survey, which covered 380 manufacturers with a combined sales volume of ₹4.8 trillion, reported a 74% capacity utilization in Q2 FY24, marking an uptick from 57% in Q1. Manufacturers expect a further surge in output, backed by an 80% rise in order books for Q2. This growth comes amid higher production levels reported by 79% of respondents during the same period.
However, the manufacturing sector faces headwinds, with demand constraints cited by over 40% of survey participants as a significant barrier.
The global trade slowdown, spurred by inflation, tighter monetary policies, and geopolitical conflicts, has impacted oil prices, balance of trade, and fiscal stability. In addition, India’s rural demand remains subdued, largely because of an uneven monsoon season which came to an end in September.
Despite these challenges, certain sectors have exhibited strong capacity utilization, with the paper and paper products industry leading at 90% in Q2 FY24. Chemicals, fertilizers, and petrochemicals reported 68% capacity utilization, the lowest among the lot.
Sectors like automotive and auto components, cement and capital goods, and construction equipment, key indicators of economic growth, reported 74%, 80%, and 77% capacity utilization, respectively, during Q2 FY24.
Overall, the survey assessed the performance of manufacturers in major industries, including automotive & auto components; capital goods & construction equipment; cement; chemicals, fertilizers & pharmaceuticals; electronics & white goods; machine tools; metal & metal products; textiles, apparel & technical textiles; paper; and other miscellaneous industries.
The Reserve Bank of India has forecast a 7.8% real GDP growth for Q1FY24 and a full-year growth of 6.5%. Moody’s Investor Services has retained India’s economic growth at 6.7% for the calendar year 2023, saying that the country has shown remarkable resilience amid a global slowdown buoyed by solid domestic demand.
Interestingly, while demand in urban areas has risen, rural demand has been tepid due to uneven monsoons and slow recovery after the pandemic. However, this is expected to improve in the coming quarters.
“Consumption growth post-pandemic has been mixed, with slow recovery in rural demand,” Morgan Stanley said in a recent report.