A survey by industry body FICCI reveals that the manufacturing outlook for the July-September quarter is expected to improve significantly. The survey included manufacturers from 11 major sectors including automotive, capital goods, cement, pharmaceuticals, among others. Nearly 61 percent of respondents reported higher production in the second quarter of this fiscal as compared to 24 percent in the same period last year. The overall capacity utilisation in manufacturing was 72 percent in the current quarter, which indicated a recovery in manufacturing.
Another survey conducted by Amazon India reveals nearly 60 percent of Indian professionals are looking for new jobs — the survey was conducted in August and covered 1,000 professional adults across India. Two in three job seekers are looking to switch industries as a result of the pandemic. One in three of them are looking for a new job right now where they can do more meaningful work. Nearly 90 percent of respondents said they are interested in learning new skills.
Farming has taken a backseat in rural India, according to a ministry of statistics report quoted by the Business Standard. According to the findings of the situation assessment of agricultural households in rural India, the number of families not engaged in agriculture rose from 66 million to nearly 80 million between 2013 and 2019.
The report points out that farmers are earning more from wages than from cultivation, which essentially means that farmers are now predominantly labourers. Adjusted for inflation, farmer incomes have grown only 21 percent from 2013 to 2019, whereas the economy has grown 52 percent in size during this period.
Is the economy on the mend? Is recovery sustainable and are we likely to see further momentum?
To discuss all this in-depth, CNBC-TV18 spoke to Ajay Sahai, Director General, and CEO, Federation Of Endian Export Organisations (FIEO); Subhrakant Panda, vice-president of FICCI; Animesh Saxena, President, Federation of Indian Micro and Small and Medium Enterprises (FISME); and Dinesh Dua, Chairman, Pharmaceuticals Export Promotion Council of India (Pharmexcil India).
FICCI’s business survey suggests that things are looking up as far as the manufacturing sector is concerned, which has been evident if one looked at a lot of the high-frequency data that come out every month, but capacity utilisation continues to be about 72 percent. So the possibility of fresh investment going into building capacity is still some time away.
Panda said, “I don’t think it is that far away as one would think. Because one of the other aspects that the FICCI manufacturing survey threw up is that about 32 percent of respondents said that they are cautiously considering adding capacity. So you know, it’s not just the government, upping its spending going ahead but finally, the private sector is also coming out of its shell looking at investments.”
According to him, the past 18 months have been very unusual and it would have taken a very brave person to commit to investments.
“But I think we’re over that hump now, with all the high-frequency data that is coming through 61 percent reporting higher production, more than two-thirds reporting higher orders. With 72 percent of average capacity utilisation, cutting across 11 sectors, there is room for improvement but believe we are getting there,” said Panda.
When asked what was the current situation in terms of demand outlook, both domestic and export?
Panda said, “Domestic demand has obviously been affected by the lockdowns that we saw and the effect of the second wave in April onwards, and that will take a little bit of time to sort of peter away. But I believe things are on a much better footing at this point in time. It’s not just the 72 percent capacity but also the fact that we have the festive season coming up, and that will normally provide a boost to demand and I don’t think it will be any different.”
With the easing of restrictions, the approach to sort of graded opening up has served well and while keeping a watch on making sure that there are no early indicators of a third wave, although hopefully there is not going to be a third way but more of a ripple and that the domestic demand is going to get a positive boost from the festive season, he said.
He added that as far as exports are concerned, it will also do well-driven as it is by the fact that economies around the world are opening up and there is a lot of money being pumped into infrastructure and other means to support respective economies. All of that is translating clearly into higher demand.
The government has said that they would clear the pending dues, whether it is Merchandise Exports from India Scheme (MEIS) or other schemes that have been held back to the tune of nearly Rs 56,000 to anywhere to Rs 75,000 crore in this year itself, which was a big sticky point, the other being higher freight costs.
So when asked how would he gauge the pulse of the Indian exporter today, Sahai said, “In fact, exports are doing extremely well and had it not been container short in the first four months, we could have probably crossed around $180 billion export though we touched $164 billion. The order booking position of Indian exporters is extremely healthy. And we are seeing the distinct shift also which is happening in the global trade, which is likely to benefit India.”
At this point of time, it is the logistics issues that are extremely relevant for export be it the container shorter, high freight charges or the less space on the shipping line and that is the issue which we are all struggling with, Sahai said, adding that container shortage is delaying India’s exports and a lot of exporters are negotiating with the buyers.
At times buyers are asking them to stick to the deadline and they are forced to go for very high freight charges, which is eating out their entire profitability.
“We are also engaged with the government. We have requested the government and commerce minister recently had a meeting, where many of the decisions have been taken, we hope that government will be regulating the export of a lot of empty containers which are going out of the country as some of the countries are providing premium on bringing on empty containers. There are a lot of containers that have been detained or abundant, customs has already issued the instruction.”
“We hope that the custodians will also be taking a call on that. We have also requested a shipping line to bring around one lakh container to ease the problem. As a medium-term roadmap, we are looking for container manufacturing in the country in a big way may require some kind of support may be on the lines of the PLI, but that should be the way forward for all of us,” said Sahai.
When asked in the immediate term, what is the expectation one was hearing about the possibility of some sort of a freight subsidy as well? Is that a serious consideration?
Sahai said, “I agree with you, freight subsidy is something which we are also following up with the government and the government has already provided the support to the agriculture sector by expanding the Transport and Marketing Assistance (TMA) and increasing the different support which was available under the TMA. Similar kind of a scheme may be for two quarters, the third and fourth quarter is required for freight.”
In the given situation, the freight subsidy is something that is the most feasible option. It will take some time for freight itself to soften up but we expect that by March-end freight may start coming down, said Sahai.
When asked what is the pulse check off the industry both in terms of domestic demand, export outlook and manufacturing? Dua said an interesting question because the month of August witnessed a very robust growth unprecedented in the history of domestic pharmaceutical sales.
“We’ve grown by almost 18 percent in the domestic paradigm and it’s been one of the highest growth. But in exports, unfortunately there has been a decline for the first time. So it’s, a great contrast between exports and domestic which are vertically divided equitably, between $22 billion versus $25 billion.”
Dua said domestic demand is propelled and the capacity utilisation has reached a crescendo, a peak level of nearly 80-85 percent, depending on the product mix.
It is because the acute therapy which had shown a decline of 40 percent now, catching up with the chronic segment, therapy areas, and COVID and non-COVID performing very well together and that’s what’s witnessed a steep growth in terms of capacity utilisation, as well as the sales per se.
Talking about concerns, he said, “It is not only the freight outwards, but the freight inwards have gone up. API and KSMs from China, the prices have gone up anything between 30 to 40 percent. Therefore, the industry is up in arms and saying that you have to make sure that prices undergo revision based on real-time increased in terms of inputs and of course the freight if it is outward freight which has gone up by substantial numbers, there is a similar scenario containers not available, their container costs have gone up so dramatically.”
“In certain cases, the freight cost component in medical devices and oxygen concentrators has gone up by 300 to 400 percent, constituting almost around 30 to 40 percent of the total costs and costs of medical devices the same as case with APIs. So whereas we are growing, but the bottom line is getting eroded,” said Dua.
For the entire discussion, watch the accompanying video