Costlier credit, raw material dented confidence in manufacturing sector: Study

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Costlier credit and high raw material prices have dented confidence in the manufacturing sector leading to moderation in growth, according to the assessment surveys done by two industry chambers.

A CII-ASCON survey found that during April-September period moderation in growth is taking place in manufacturing sector.

Similarly, 74 per cent respondents in a separate Ficci survey expected growth to decline in the sector in the July-September quarter of the current fiscal.

"The ASCON survey is a forward looking indicator and shows deceleration in growth in a large number of industrial sectors in the first half of the fiscal," CII Director General Chandrajit Banerjee said. The survey covered 3,500 companies.

The Ficci study reflected a further fall in the overall sentiment and expectations of the manufacturing sector during July-September 2011. "The two most important factors for moderation in growth were the rise in the cost of capital and raw material," the chamber said.

Indicating slowdown, the economic growth (GDP) rate for the April-June period slipped to 7.7 per cent, the lowest level in the last one-and-a-half years.

GDP growth in April-June was pulled down, primarily by the manufacturing sector that dipped to 7.2 per cent from 10.6 per cent in the corresponding period of 2010-11.

Ficci urged the RBI not to increase rates any further as it "would directly impact the capacity additions and growth of the manufacturing sector".

The RBI has increased key interest rates 11 times since March, 2010 in its bid to check inflation, which is hovering near double digit.

The ASCON survey also highlights some of the general and sector specific issues faced by the industry.

"The government needs to speed up the reform agenda in order to get the manufacturing sector back on track. Unveiling the National Manufacturing Policy at the earliest would be a step in the right direction," Banerjee said.

The government is also working on a National Manufacturing Policy aimed at increasing the share of the sector in the GDP from the current 15-16 per cent to at least 25 per cent by 2020.

As per the Ficci's survey, capacity utilisation levels are particularly low in textiles, consumer electronics and electrical sectors.

On the employment front, it said that 57 per cent of the respondents do not plan to increase their workforce in the next three months.

Ficci's study further said that seven out of 12 sectors covered in the survey were likely to witness low to moderate growth of less than 10 per cent in the second quarter.

These sectors include, consumer durables, cement, steel and capital goods. On the other hand, CII's survey said that out of 86 sectors covered, the percentage of sectors reporting excellent growth of more than 20 per cent had declined to 10.5 per cent in April-September 2011 as compared to 35.7 per cent in the same period last year.

The sectors reporting negative growth rate have increased significantly to 25.6 per cent from a low of 8.7 per cent in 'a clear sign of deceleration growth,' CII said.