Construction recovery in Q2, higher cost of production cause for concern

The improvement in construction in the second quarter, the high cost of production has become a cause for concern.

With economic activities picking up across the country, industry people are getting optimistic about the pace of work in the manufacturing sector. The FICCI Manufacturing Survey for July-September showed that after experiencing a moderation in the first quarter (April-June 2021-22), the outlook has improved significantly in the second quarter.Also Read – Industrial Output grew by 7.1 percent in December | Factory output up 7.1 percent in December, good growth in manufacturing, non-durable consumer sectors

The percentage of respondents reporting higher production in the second quarter of 2021-22 was significantly higher from 50 per cent to around 61 per cent. This was significantly higher than the same percentage in the second quarter of the previous year (about 24 per cent). Also Read – Sensex surges 258 points; capital goods stocks gain

A FICCI statement also said that the valuation is also reflected in the order book as 72 per cent of the people in July-September 2021-22 expected a higher number of orders as compared to April-June 2021-22.

However, the survey revealed that a high percentage of people are experiencing rising costs of doing business and production.

The cost of production as a percentage of sales for manufacturers in the survey increased to 80 per cent in Quarter 1 of 2021-22. This is much higher than what was reported for the fourth quarter of 2020-21, where 72 per cent of the people reported an increase in their cost of production.

The statement said, “Industry people have mainly incurred high fixed costs, high overhead costs to ensure safety protocols, huge volume reduction due to the lockdown, low capacity utilisation, high freight charges and other logistics costs, raw material costs, etc. The increased cost of goods is attributed to increase in cost of production, cost of electricity and higher interest rates.

The new quarterly survey covered eleven key sectors such as automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics and electricals, metals and metal products, paper products, textiles, textile machinery, toys in Quarter-2 (July-September). For 2021-22) the sentiments of the producers were assessed.

The inputs have been collected from over 300 manufacturing units from both large and SME sectors with a combined annual turnover of over 2.7 lakh crores.

The survey showed that the overall capacity utilization in the manufacturing sector stood at 72 per cent in the second quarter of 2021-22, which again shows signs of improvement in manufacturing. However, the investment outlook for the future remains one of cautious optimism, as 32 per cent of people reported capacity addition plans for the next six months.

It also noted that the cost of doing business continues to be a cause of concern for the sector.

High raw material prices, high cost of finance, demand uncertainty, lack of skilled labor and working capital, high logistics cost, low domestic and global demand, surplus capacity due to high volume of cheap imports in India, volatile market, high power Fees are some of the major constraints which are affecting the plans of the people.

(With IANS Inputs)


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