Manufacturing Investment Outlook Stable for Next Six Months: FICCI The average interest rate paid by manufacturers stood at 9.5 per cent, with over 80 per cent of respondents indicating that they had adequate access to bank funds for both working capital and long-term investments.

India's manufacturing sector is witnessing sustained growth and heightened optimism, as revealed in the quarterly survey on manufacturing (QSM) by the Federation of Indian Chambers of Commerce and Industry (FICCI). The findings indicate a positive trajectory for the sector in Q3 FY 2025, with approximately 83 per cent of respondents reporting either higher or stable production levels compared to the same period in the previous fiscal year. This marks one of the highest indices recorded in recent months, reinforcing the sector's resilience and potential for continued expansion.

The investment outlook remains stable, with 42 per cent of manufacturers expressing plans for expansion and investment over the next six months, mirroring the sentiment recorded in the previous survey. While domestic demand conditions remained robust in Q3 FY 2025, concerns linger over potential demand fluctuations in the coming months.

"While the upward trajectory in production levels and investment plans looks promising, cost pressures and skilled labour shortages remain critical challenges. For the construction equipment industry, this underscores the growing need for fuel-efficient, high-performance machinery that reduces operating costs and enhances productivity. Advancing telematics-driven fleet management, energy-efficient equipment, and electric solutions is essential. These innovations will help India's builders navigate cost pressures and labour shortages while fostering sustainable infrastructure growth," says Dimitrov Krishnan, MD, Volvo CE India.

However, this quarter's order book trends provide an encouraging sign, with 83 per cent of manufacturers anticipating an increase in orders compared to the previous quarter. The responses have been drawn from manufacturing units from both large and SME segments with a combined annual turnover of over INR 4.7 lakh crore.

Capacity utilization in manufacturing stood at an average of 75 per cent, reflecting steady economic activity within the sector. Ramendra Verma, Partner and Government consulting leader, Grant Thornton Bharat says, "The fundamentals are in place. We had analyzed this pre-budget. The capacity utilization is higher than the average of the last 16 years. This is the reason why respondents are bullish about the future. The budget is also doing its part by giving more disposable income in the hands of the masses. I feel it is a matter of months before this starts to add up."

However, expansion efforts are being hindered by rising raw material costs and high interest rates, which are exerting financial pressure on manufacturers. Additionally, the report highlighted concerns about weak domestic and export demand, further contributing to market uncertainties. The recently announced budget is expected to introduce measures to address some of these challenges, offering a potential boost to manufacturing investments.

Beyond financial constraints, regulatory complexities and skilled labor shortages are also significant barriers to expansion. Lengthy approval processes, non-tariff barriers, and high land acquisition costs have hindered manufacturers, placing them at a competitive disadvantage compared to countries with more streamlined regulatory frameworks.

To bridge this gap, India must focus on regulatory reforms and industry-friendly policies that facilitate ease of doing business. Competitive pressures from countries with advantageous trade policies further impact pricing strategies and profitability, making it imperative for India to strengthen its competitive edge through policy support and industrial incentives.

"With manufacturers collectively generating a staggering turnover surpassing Rs. 4.7 lakh crores, the automotive sector stands poised for sustained and dynamic growth. To elevate the global competitiveness of India's automotive and electric vehicle landscape, it is essential to prioritize the localization of supply chains, invest strategically in advanced manufacturing technologies, and cultivate a supportive policy environment that encourages innovation and development," says Ajinkya Firodia, vice chairman & MD, Kinetic Engineering Ltd.

Inventory levels remained steady, with over 75 per cent of manufacturers expecting either higher or the same level of inventory in Q3 FY 2025. On the export front, the sector demonstrated robust performance, with 65 per cent of respondents reporting increased exports in Q2 FY 2025 and over 70 per cent expecting a further rise in Q3 FY 2025.

Employment trends also showed positive momentum, with 35 per cent of manufacturers planning to hire additional workforce in the next three months. Despite these hiring intentions, concerns persist regarding the availability of skilled labor, with 20 per cent of respondents identifying skill shortages as a challenge that needs to be addressed at both the industry and governmental levels.

The average interest rate paid by manufacturers stood at 9.5 per cent, with over 80 per cent of respondents indicating that they had adequate access to bank funds for both working capital and long-term investments. However, production costs remained high, with nearly 60 per cent of manufacturers reporting an increase in costs as a percentage of sales. The rising costs have been attributed to escalating prices of essential raw materials such as iron, steel, rubber, and chemicals like ethylene oxide and caustic soda.