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Manufacturing growth revived in Q4, reveals study

Notwithstanding a tight monetary policy that is continuing and adverse reactions to some of the Budget proposals, a larger number of players sense a growth in the manufacturing sector to have revived in the last quarter of 2011-12, says a study. They expect a healthy expansion of over 10 per cent in segments such as automobile, tyres and leather products.

A quarterly manufacturing survey conducted by the Federation of Indian Chambers of Commerce and Industry (Ficci) shows that about 36 per cent of the 336 respondents to the survey expected growth in manufacturing to have recovered in Q4 of the just-concluded financial year. This reflects higher confidence on the manufacturing sector, against only 13 per cent saying so for the third quarter and 26 per cent Q2 of 2011-12.

The survey revealed that chemicals, cement, steel, textiles, paper and electronics are expected to have witnessed a growth of below 5 per cent in the fourth quarter, while automotive, leather and tyres are likely to have seen a growth in excess of 10 per cent. The growth is expected in the light of improved demand.

Note: Strong > 10%; 5% < Moderate < 10%; Low < 5% Source: Ficci survey

However, the recent HSBC purchasing managers’ index (PMI) showed that while the demand is robust, power cuts and input shortages are coming in the way of manufacturing growth in March 2011-12. The PMI stood at 54.7 points in March, versus 56.6 points in February. The January PMI stood at 57.5. Reading above 50 denotes growth, while below it is contraction.

Also, respondents in the PMI survey have expressed that confidence sank, though in services sector, after Budget proposals. The budget proposals such as retrospective amendments to the Income Tax Act and the General Anti-Avoidance Rule have drawn flak from the industry.

Those associated with PMI survey, however, do not directly link shrinking confidence to these budget proposals. They say it may be largely related to lack of reforms and fiscal consolidation story in the Budget.

About 58 per cent of the respondents in the Ficci Survey said rising cost of raw materials was the most important constraint for growth. Only 34 per cent felt so about rising cost of interest.

Over 47 per cent respondents reported higher orders than in Q3. However, only 30 per cent respondents reported plans to increase their workforce in the next 3 months.

The manufacturing growth for January 2011-12 bounced back to a seven-month high at 6.8 per cent against 2.5 per cent in December, as per the recent numbers about the index of industrial production.

Also, the sales situation in the automobile sector saw a steep improvement. In March 2012, ten of the country’s 19 leading automobile manufacturers sold 18 per cent more vehicles, compared to the sales in March 2011. This was the highest growth rate since April 2011, when sales rose 14 per cent.

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