Manufacturing Outlook Slightly Down In Q3 of 2017-18

 FICCI’s latest quarterly survey on Manufacturing suggests slightly less optimistic outlook for the manufacturing sector in the Q-3 (October- December 2017-18) as the percentage of respondents reporting higher production in the third quarter has fallen vis-à-vis previous quarter. The proportion of respondents reporting higher output growth during the Q-3 (October- December 2017-18) has fallen to 47% from 50% in Q-2, noted FICCI Survey. However, the percentage of respondents reporting low production has also come down to 15% in the Q-3 quarter from 18% in Q-2 (July-September 2017-18) quarter.

 This less optimistic outlook for manufacturing in the third quarter of current fiscal is reported to be due to factors like rupee appreciation impacting exports, issues with regard to GST implementation and subdued demand in several sectors. In terms of order books, about 42% respondents in Q-3 (October-December 2017) are expecting a higher number of orders as against 47% of Q2 2017-18 which again is reflecting subdued demand in the economy.

 FICCI’s latest quarterly survey assessed the expectations of manufacturers for Q-3 (October- December 2017-18) for twelve major sectors namely auto, capital goods, cement and ceramics, chemicals and pharmaceuticals, electronics & electricals, food products, leather and footwear, machine tools, metal and metal products, paper products, textiles and textiles machinery. Responses have been drawn from over 310 manufacturing units from both large and SME segments with a combined annual turnover of over ₹3 lac crore.

Quarter % of Respondents Expecting Higher Production in the Quarter  vis-à-vis Respective Last Year’s Quarter
Q-3 (2017-18) 47%
Q-2 (2017-18) 50%
Q-1 (2017-18) 49%
Q-4 (2016-17) 47%
Q-3 (2016-17) 48%
Q-2 (2016-17) 55%
Q-1 (2016-17) 53%
Q-4 (2015-16) 60%
Q-3 (2015-16) 55%
Q-2 (2015-16) 63%
Q-1 (2015-16) 44%
Q-4 (2014-15) 52%
Q-3 (2014-15) 50%
Q-2 (2014-15) 62%
Q-1 (2014-15) 50%
Q-4 (2013-14) 56%
Q-3 (2013-14) 52%
Q-2 (2013-14) 48%
Q-1 (2013-14) 35%
Q-4 (2012-13) 36%
Q-3 (2012-13) 45%
Q-2 (2012-13) 44%
Q-1 (2012-13) 46%
Q-4 (2011-12) 36%

Source: FICCI Survey

Capacity Addition & Utilization

Overall, the capacity utilization in manufacturing remains low. The average capacity utilization for the manufacturing sector is about 75% for Q-2 2017-18 as reported in the survey which is similar to that of Q-1 2017-18. As was the case in Q-1 2017-18, the future investment outlook remains pessimistic as 73% respondents in Q-2 2017-18 reported that they are not planning any capacity additions at least for the next six months. Increasing imports, excess capacities, lower domestic demand from industrial sectors, high raw material cost, high-interest rates are some of the major constraints which are affecting expansion plans of the respondents. Some respondents also reported that they are waiting for the market to settle down after the GST. Overall, in some sectors (like chemicals, food products, textiles, textiles machinery, leather & footwear, metal & metal products, cement and machine tools) average capacity utilization has either remained same or declined in Q-2 of 2017-18. On the other hand, sectors including auto, paper, and electronics & electricals have registered a rise in the average capacity utilisation over the same period.

 Table: Current Average Capacity Utilization Levels As Reported in Survey (%)

Sector Average Capacity Utilisation in Q-2


Average Capacity Utilisation in Q-1


Auto 79 78
Capital Goods 70 70
Cement and Ceramics 75 75
Chemicals 79 76
Electronics & Electricals 70 68
Food Products 78 NA
Leather & Footwear 55 55
Machine Tools 80 80
Metals 80 76
Paper 88 80
Textiles Machinery 50 60
Textiles and Technical Textiles 80 82

                                                                                          *NA: Not available due to lack of data


Inventory situation hasn’t changed much. 90% of the participants in Q-2 (July- September 2017-18) as compared to 92% in previous two quarters have maintained either more or same average levels of inventory.


The outlook for exports seems to be less optimistic vis-à-vis previous quarters. Although, 48% respondents expect no change in the export levels, but 32% expect exports to fall. Appreciation of rupee has made the respondents apprehensive of exports outlook with the majority of the respondents (around 57%) reporting that their exports were affected in Q-2 due to rupee appreciation.


Hiring outlook for the sector remains subdued in near future as 85% of the respondents in Q-3 2017-18 mentioned that they are not likely to hire additional workforce in next three months. This proportion is much higher than the previous quarter, where 73% of the respondents were not in favour of hiring an additional workforce.

Interest Rate

The average interest rate paid by the manufacturers has slightly come down over last quarter showing signs of moderation with an average rate of 10.5% but the highest rate continues to be as high as 15%.

Sectoral Growth

Based on expectations in different sectors, it is noted that high growth is expected in Auto, Capital Goods, Metal and Metal Products for Q-3 2017-18. Moderate growth is expected in Chemicals and Pharmaceuticals, Electronics & Electricals, Machine Tools and Textile Machinery in Q-3 2017-18 whereas low growth is expected in sectors like Cement and Ceramics, Food Products, Leather & Footwear and Textiles & Technical Textiles.

 Table: Growth expectations for Q-3 2017-18 compared with Q-3 2016-17 

Sector Growth Expectation
Cement and Ceramics Low
Food Products Low
Textiles and Technical Textiles Low
Leather & Footwear Low
Chemicals & Pharmaceuticals Moderate
Electronics & Electricals Moderate
Machine Tools Moderate
Textile Machinery Moderate
Auto Strong
Capital Goods Strong
Metal and Metal Products Strong

 Note: Strong > 10%; 5% < Moderate < 10%; Low < 5%

 Source: FICCI Survey

Production Cost

The cost of production as a percentage of sales for manufacturers in the survey has risen significantly for 59% respondents in Q-3 2017-18. This is primarily due to rise in minimum wages, raw material cost and cost of power.