Manufacturing growth to be higher in Q2 on better export outlook: Survey

New Delhi: India's manufacturing sector may witness higher growth during the July-September quarter buoyed by improvement in export prospects and domestic demand, even as the hiring outlook remains subdued, according to a survey.

The latest quarterly survey by Ficci on manufacturing outlook for the second quarter also finds that the interest rate paid by the manufacturers still remains high and sticky.

Uncertain economic environment, unfavourable market conditions, competition from imports, delayed clearances, inadequate infrastructure (especially availability of power) and cost escalation are some of the major constraints affecting the expansion plans of the industry, the poll noted.

The survey had earlier indicated a slowdown for the first quarter of 2016-17, which seems to be waning.

The proportion of respondents expecting higher growth during July-September quarter has risen to 55 percent as against 53 percent for April-June quarter 2016-17, although, it remains much below the percentage of 60 percent for January-March quarter of the previous fiscal.

Manufacturing sector in India continued with its uptrend and hit a four-month high in July, backed by stronger upturn in new business orders.

The Nikkei Markit India Manufacturing Purchasing Managers' Index (PMI) - a composite indicator of manufacturing performance - rose to 51.8 in July from 51.7 in June.

A reading above 50 denotes expansion while one below means contraction.

The slight improvement in the outlook for manufacturing production in second quarter of 2016-17 is attributable to various factors including somewhat better outlook for exports compared to previous quarters, and better outlook on domestic demand front too, the survey pointed out.

Export outlook for manufacturing in September quarter improved slightly as against the expectations for the first quarter. The proportion of respondents expecting higher exports in the second quarter rose by 5 percentage points to 41 percent as against 36 percent in 2016-17.

However, hiring outlook remains subdued in manufacturing in coming months as three quarters of the participants in second quarter of 2016-17 are unlikely to hire additional workforce in next three months. The proportion remains almost similar to that recorded for June quarter (76 percent).

Moreover, average interest rate paid by the manufacturers still reportedly remains high and sticky. The rate is as high as 15 percent as per the survey with average interest rate at around 11.5 percent per annum.

The survey mapped expectations of manufacturers for thirteen major sectors namely auto, capital goods, cement and ceramics, chemicals, electronics & electricals, food products, leather and footwear, machine tools, metal and metal products, metal forging, paper products, textiles and technical textiles and textiles machinery.

Responses have been drawn from 308 manufacturing units from both large and SME segments with a combined annual turnover of over Rs 4 lakh crore.