CII-ASCON Industry Survey November 2016

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1. November 2016 2. Executive Summary 1 1. Economy Overview 3 2. CII ASCON Industry Survey Results 5 2.1 Methodology 2.2 Industry growth performance during July-September…
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  • 1. November 2016
  • 2. Executive Summary 1 1. Economy Overview 3 2. CII ASCON Industry Survey Results 5 2.1 Methodology 2.2 Industry growth performance during July-September FY17 over July-September FY16 2.3 Industry growth performance during Q2 FY17 over Q1 FY17 2.4 Capacity Utilization 2.5 Issues and Constraints 2.6 Outlook for next six months 3. Industry Suggestions 12 4. Appendices 15 Appendix A: Sample Coverage and Methodology Table A1: Sample Coverage: Use-based classification of sectors Appendix B: Distribution of total sample sectors over different growth ranges Table B1: Production (July - September; FY17 over FY16) Table B2: Sales (July - September; FY17 over FY16) Table B3: Exports (July - September; FY17 over FY16) Contents
  • 3. Copyright © 2016 by Confederation of Indian Industry (CII), All rights reserved. No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However, neither CII nor any of its office bearers or analysts or employees can be held responsible for any financial consequences arising out of the use of information provided herein. However, in case of any discrepancy, error, etc., same may please be brought to the notice of CII for appropriate corrections. Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-110003 (INDIA), Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: info@cii.in; Web: www.cii.in
  • 4. ASCON INDUSTRY SURVEY • November 2016 1 EXECUTIVE SUMMARY T he CII ASCON Industry Survey, which tracks the growth of the economic activity through responses collected from the sectoral associations, reveals a divergence in the growth trends in the July-September FY 17 quarter as compared to same quarter a year ago with growth mainly being driven by the consumption related sectors. The sectoral trends for year-on-year growth also reveals that growth is coming from a few sectors of the economy and a broad based growth is yet to be achieved. Overall the survey results indicate that going forward, the continued traction in urban consumption and revival of the rural economy would have a multiplier effect on sectors that are driven by consumption and the revival in demand would eventually translate to revival in private capex as well. The Survey classifies the growth trends across four broad categories, namely Excellent (20%), High (10-20%), Moderate (0-10%) and Low (0%). The results of the latest CII ASCON Industry Survey for July-September (Q2) FY17 suggests that the performance of sectors has been more divergent in Q2FY17 as compared to the same quarter previous year, with the share of sectors registering ‘Moderate’ range (0-10 Percent) coming down and at the same time more sectors falling in the ‘Excellent ‘category’ (20 percent) on the one hand and ‘low’ category (0 percent) on the other. According to the Survey, out of the 93 sectors surveyed, the share of the sectors recording ‘Excellent’ growth 20 percent has increased substantially to 15.1 percent (14 out of 93 ) in July-September FY17 quarter as against 7.5 percent (7 out of 93) recorded in the same quarter previous year. At the same time, the share of sectors witnessing ‘High’ growth rate (10 to 20 percent) has witnessed a marginal decline recording a share of 15.1 percent (14 out of 93 ) in the July-September FY17 from 16.1 percent (15 out of 93) during the corresponding period a year ago. At the same time, the Survey reveals that the share of sectors reporting ‘Moderate’ growth of (0–10 percent) has shrunk to 29.0 percent (27 out of 93) in Q2 FY17 as compared to 46.2 percent (43 out of 93) recorded in the same quarter last year. Also the share of sectors witnessing ‘Low’ growth (0 percent) has surged from 30.1 percent (28 out of 93) to 40.9 percent (38 out of 93) in Q2 FY17. The silver lining is the significant rise in the share of sectors in the ‘Excellent’ growth category and stability in ‘High’ growth sectors which suggests a pickup in growth momentum in some pockets. A further detailed sectoral analysis reveals that while the growth trends are still concentrated in the ‘Moderate’ category (of 0-10%), a rise in the number of sectors reporting low growth of less than 0 percent is a cause of concern.
  • 5. 2 ASCON INDUSTRY SURVEY • November 2016 The sectoral growth trends on year-on-year basis also reveals that growth is coming from a few parts of economy and a broad based growth is yet to be achieved. On a sequential quarter-on-quarter basis also, the Survey results reveals slowing in the growth performance in the surveyed quarter from the previous quarter ie Q1 FY17. While the percentage of sectors reporting ‘excellent’ performance in July–September FY17 has surged, registering 15.1 percent (14 out of 93) as compared to a share of 9.7 percent (9 out of 93) in the previous quarter, the share of ‘high’ growth sectors has shrunk marginally to 15.1 percent (14 out of 93) in Q2 (July-September) FY17 from a share of 16.1 percent (15 out of 93) in Q1 FY17. The share of sectors witnessing moderate growth has declined sharply registering 29.0 percent share (27 out of 93) in Q2 FY17 as against 40.9 percent (38 out of 93) recorded in Q1 FY17. At the same time, there has been a significant rise in the sectors witnessing ‘Low’ Growth. The sectors witnessing ‘Low’ Growth has inched up from 33.3 percent (31 out of 93) in Q1 FY17 to 40.9 percent (38 to 93) in Q2 FY17. On the capacity utilization front, an indicator of demand acceleration in the economy, the Survey reveals a mild improvement in the surveyed quarter as compared to the last quarter and the quarter going forward, While the onset of festive season has supported higher utilization of the existing capacities in some sectors, overall the capacity utilization level in the industry remains modest with majority of the sectors reporting to continue to operate in the range of 50-75 percent. However going forward, there are expectations of improvement in the capacity utilization. Expectations of rising capacity utilization further prompt towards an expected pick up in the private investment. With respect to issues and concerns impacting growth, lack of domestic demand (60%), cost and availability of finance (50%), high tax burden, regulatory burden and transport infrastructure bottlenecks (44.4 %), have been cited as the “Most Important” constraints by more than 40 percent of the respondents. On the other hand, shortage of power (70 %), shortage of skilled labor and high tax burden (55.6 %) were reported as “Moderately Important” issues before the industry. Significantly, the survey respondents have expressed their optimism for further improvement in the near –term growth helped by continued policy actions and enhanced business and consumer confidence. Nearly 70 percent of the respondents expect moderate improvement in the overall business situation. Overall, going forward, recovery is expected to continue to be led by improvement in consumption, as the lagged impact of normal monsoon, 7th Pay Commission payouts and onset of festival season to provide further support. Respondents have stressed on the need for reviving investments. In the upcoming Budget 2017-18, the respondents have emphasized on reinstatement of Minimum Alternate Tax (MAT) exemption on SEZ Profits; increasing the threshold limit from exemption of Alternate Minimum Tax (AMT) from Rs. 20 lakhs to Rs. 50 lakhs; extending the scope of Section 80 IA of the Income Tax Act, 1961 to include units engaged in the business of manufacturing defence and aerospace equipment and upgrading existing infrastructure; tax benefit on expenditure on scientific research; a financial allocation for vehicle fleet modernization; interest subvention for technological upgradation etc.
  • 6. ASCON INDUSTRY SURVEY • November 2016 3 Economy Overview T he fiscal year 2016-17 commenced with hopes and expectations of a robust recovery, it is mid –year and the incoming macro data still points towards mixed signals towards recovery. Reflecting diverging consumption and investment trends, while the lead indicators related to consumption such as personal loans growth, PMI services continued to uphold growth on trend basis the investment and manufacturing related indicators such as industry growth, industrial credit, continue to display tepid momentum in their recent prints. The GDP data for the first quarter of the fiscal year 2016-17 revealed a loss in momentum in the quarter, dragged down mainly by a contraction in fixed investment and disappointing growth in private consumption. While the Q1 GDP results marked the slowest expansion in five quarters, growth of gross value added (GVA) at basic prices inched up to 7.3% in Q1 FY2017 from 7.2% in Q1 FY2016, led by a sizable improvement in growth of services (to 9.6% from 8.8%). In contrast, the pace of expansion eased in Q1 FY2017 compared to Q1 FY2016 for industry (to 6.0% from 6.7%) and agriculture, forestry fishing (to 1.8% from 2.6%). Gross fixed capital formation (GFCF)—a proxy for investment demand in the economy— continued to signal no pick-up in the private investment activity. It has contracted to 3.1% during August quarter. This dip in investment is despite government pushing public investment (18.8% growth of government final consumption expenditure (GFCE)). This can be attributed to excess capacity in private sector and high level of debt in sectors such as construction, infrastructure. According to the CMIE capex data, growth in outstanding projects under execution remained steady at 5.5% YoY in Q2FY17, unchanged from Q1FY17 as improvement in stalled projects offset the moderation in project announcement. The CMIE capex data suggests that private sector investment appetite continues to remain weak with both execution and announcement of new projects continued to be led by public sector. This is also corroborated by the RBI data on funding pattern for proposed private investment. The data shows that in FY17 till July investment proposals worth Rs 647 bn were funded through various channels such as Banks, IPOs, ECBs, and FCCBs. This was nearly 21% lower than Rs 819 bn during same period last year. The RBI data on project funding also reveals that the average ticket size of new project announcements by private sector has progressively declined over the years suggesting that risk appetite among private sector for mega projects continues to remain subdued. However going forward, fiscal constraints would prevent a sharp pickup in the GoI’s direct investment in infrastructure. India’s fiscal deficit stood at 76.4% of BE over Apr‑Aug FY17
  • 7. 4 ASCON INDUSTRY SURVEY • November 2016 as compared to 66.5% in the corresponding period last fiscal year, driven by de-growth in non-tax revenue. Moreover, persisting asset quality and capital adequacy concerns for the public sector banks are likely to constrain their ability to fund. Notwithstanding government’s efforts at de-bottlenecking stalled projects, stock of stalled projects saw a sequential uptick in Q2 FY17 compared to a decline in Q1FY17. On sectoral basis, electricity, metals and transport services continued to dominate the stock of stalled projects together accounting for more than 2/3rd of stalled projects. The data also showed that the issues with iron and steel sector have begun to ease in Q2FY17 as the share of iron and steel sector in stalled projects fell sharply from 66.7% in Q1FY17 to 21.7% in Q2FY17. Reflecting further on the health of the industry, the credit off-take with respect to industrial credit continued to show weakness, with weakness being broad based across small, medium and large industries. The continued weakness in credit off-take to large industries reinforces the weakness in investment cycle. However, due to stronger transmission of monetary policy relative to credit market, commercial paper and corporate bond issuances have seen a healthy increase in FY7.On the other hand, the strength in consumption demand reinforced by a normal monsoon, 7th Pay commission payouts and easing inflation, is reflected in robust demand for personal loans, which continue to uphold the pace of overall credit growth in the economy. This continued divergence in credit growth (industry vs. services) suggests that growth continues to be driven by some pockets in the economy and is yet to attain a broad based character. On external front, while the exports posted an increase of 4.62 per cent in September 2016 to $22.88 billion (year-on-year) — the second instance of monthly growth this fiscal — Cumulative value of exports for the period April-September 2016-17 registered a negative growth of 1.74 per cent in Dollar terms. Whereas, cumulative value of exports registered a  negative growth of 13.77 per cent in Dollar terms for the period April-September 2016-17. Driven by a lower merchandise trade deficit, Current Account Deficit (CAD) narrowed annual basis and continued to post a deficit of USD 0.3 bn (0.1% of GDP) in Q1FY17, lower than USD 6.1 bn of Q1 last year (1.2% of GDP) but remained unchanged compared to Q4FY16. On the reforms front, the Indian Parliament passed Goods and Services tax (GST), the biggest reform in the indirect tax domain in India. Over the medium-term, the implementation of GST should boost business confidence and investment, brightening the environment for an accelerated growth. Other initiatives such as steps to attract foreign direct investment in defence, civil aviation, pharmaceuticals and broadcasting, measures to improve infrastructure, the enactment of the Insolvency and Bankruptcy Code and the Real Estate (Regulation and Development) Act should also contribute to unlocking entrepreneurial energies and growth impulses. Fundamentally, India still continues to remain attractive on the global stage on account of pro-reform focus of the Government and Government’s continued emphasis on reviving manufacturing sector through structural steps, easing monetary policy and an upward trajectory of the economy..
  • 8. ASCON INDUSTRY SURVEY • November 2016 5 CII ASCON Industry Survey Results 2.1 Methodology Confederation of Indian Industry (CII) conducted the CII ASCON Industry Survey to ascertain the performance of industry during July-September 2016 over July-September 2015 quarter and over previous April-June (Q1) FY17 quarter. The Survey was conducted from 1-30 2016 October 2016. The Survey is based on the feedback collected from CII Affiliated Industry Associations mostly representing around 70 percent of the total output in their sector. The companies covered in the Survey represent a wide spectrum of sectors including basic goods, intermediate goods, capital goods, consumer durables and non-durables and services numbering more than 35,000 companies. The survey analysis is based on 93 responses. The Survey classifies the growth trends across four broad categories, namely ‘Excellent’ (20%), ‘High’ (10-20%), ‘Moderate’ (0-10%) and ‘Low’ (0%). 2.2 Industry growth performance during July-September FY17 over July-September FY16 The results of the latest CII ASCON Industry Survey for July-September (Q2) FY17 reveals divergence in the growth trends in the Q2FY17 quarter as compared to the same quarter previous year. This is borne out of the fact that out of the 93 sectors surveyed, the share of the sectors recording ‘Excellent’ growth of 20 percent has increased substantially to 15.1 percent (14 out of 93 ) in July-September FY17 quarter as against 7.5 percent (7 out of 93) recorded in the same quarter previous year. At the same time the share of sectors witnessing ‘High’ growth rate of 10 to 20 percent has witnessed a marginal decline recording a share of 15.1 percent (14 out of 93) in the July-September FY17 from 16.1 percent (15 out of 93) during the corresponding period a year ago. The Survey reveals that the share of sectors reporting ‘Moderate’ growth (0–10 percent) has shrunk to 29.0 percent (27 out of 93) in Q2 FY17 as compared to 46.2 percent (43 out of 93) recorded in the same quarter last year. Also the share of sectors witnessing “Low” growth (0 percent) has surged from 30.1 percent (28 out of 93) to 40.9 percent (38 out of 93) in Q2 FY17.
  • 9. 6 ASCON INDUSTRY SURVEY • November 2016 The silver lining is the significant rise in the share of sectors in the ‘Excellent’ growthcategory and stability in ‘High’ growth sectors which suggests pick-up in growth momentum in some pockets. A further detailed sectoral analysis, reveals that while the growth trends are still concentrated in the ‘Moderate’ category ( 0-10%), a rise in the number of sectors reporting low growth of less than 0 percent is a cause of concern. The sectoral trends for year-on-year growth also reveal that growth is coming from a few parts of economy and a comprehensive mix is yet to be achieved. In the basic and intermediate goods categories, a large number of sectors have reported growth numbers falling in the ‘Moderate’ category. With government’s increased thrust on infrastructure sector, there has been some uptick in activity in the basic and intermediate goods segments. This is reflected in the expansion in the output in core sectors such as steel and fertilizers. While the Steel continues to show signs of revival due to Government policy support measures, other sectors like cement, crude oil and petroleum and refinery have registered moderate growth in the surveyed quarter. Figure 2.2: Industry performance Q2 FY17 over Q2 FY16 (in %)                 At the same time, the survey reveals that the share of sectors reporting ‘Moderate’ growth of (0–10 %) has shrunk to 29.0 percent (27 out of 93) in Q2 FY17 as compared to 46.2 percent 43 out of 93) recorded in the same quarter last year. Also the share of sectors witnessing “Low” growth of (0 percent) has surged from 30.1 percent (28 out of 93) to 40.9 percent (38 out of 93) in Q2 FY17. The only silver lining is the significant rise in the share of sectors in the ‘Excellent growth’ category and stability in ‘high’ growth sectors which suggests pickup in growth momentum in some pockets. A further detailed sectoral analysis, reveals that while the growth trends are still concentrated in the ‘Moderate’ category (of 0-10%), a rise in the number of sectors reporting low growth of less than 0 percent is a cause of concern. Figure 2.2 Industry performance Q2 FY17 over Q2 FY16 (in %)   15.1 7.5 0.0 5.0 10.0 15.0 20.0 Excellent July-September FY17 July-September FY16 15.1 16.1 5.0 15.0 25.0 High July-September FY17 July-September FY16 29.0 46.2 25.0 35.0 45.0 55.0 Moderate July-September FY17 July-September FY16 40.9 30.1 10.0 20.0 30.0 40.0 50.0  July-September FY17 July-September FY16
  • 10. ASCON INDUSTRY SURVEY • November 2016 7 The Capital Goods sector, a bellwether for actual implementation of the announcements on the ground, has also shown mixed trends. The subsectors in the capital and engineering goods sectors like earthmoving and construction equipment, power transformers have reported excellent growth, whereas machine tools industry has witnessed high growth. Other sectors such as transmission line towers, etc. have reported moderate growth in the surveyed quarter. The growth trends reveal that ordering activities continues to be on a positive track in select spaces mainly on the back of orders from roads, railways, solar and defence. This points to the fact that the investment cycle is yet to become broad-based. On the back of good monsoons, low inflation and payouts of Seventh Pay Commission, performance of the consumer durables, an indi
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