Manufacturing sector may slowdown in Q1 FY17, finds Ficci

Manufacturing activity in India is likely to decline in the first quarter (Q1) of the fiscal year 2016-17 on the back of declining exports, lower demand, higher interest rates, and sluggish economic growth, a recent survey by Ficci has found. 

Manufacturing activity, which contributes 75% weightage to the Index of Industrial Production (IIP) growth, declined by 1.2% in March as compared to a growth of 2.0% in the corresponding period of previous fiscal, showed the recent data by the Central Statistics Office (CSO). Manufacturing, mining and electricity activity make up the IIP figure.

In April, Manufacturing Purchasing Managers' Index (PMI) show a marked slowdown in output expansion "as the growth of new work ground to a halt following a robust increase in the prior month," Pollyanna De Lima, Economist at Markit and author of the report said earlier this month. 

Manufacturing PMI dropped to a four-month low in April. 

After witnessing a growth for three straight months, Indian manufacturers saw a decline in new orders in April. 

The Reserve Bank of India (RBI) had reduced the key interest rate by 25 basis points to 6.50% in April -- the lowest level seen in more than five years. However, so far, data shows that it has failed to give any major boost to investments in the manufacturing sector, which will only contribute to slowing down the manufacturing sector going ahead.

This is seen in the capital goods segment, which is considered to be a barometer of investment. The segment contracted by 15.4% in March as against a growth of 9.1% year ago. 

The Ficci survey arrived at the conclusion that even though the "interest rate paid by the manufacturers seems to have moderated in the last few months, however, it still remains high. The interest rate ranges from 6% to 15% with average rates being around 11.4% per annum compared to 11.8% in the previous survey."