India’s manufacturing sector may show growth improvement in the October-December quarter with a slightly better outlook for production, driven by better export prospects, according to a report.

The proportion of respondents positive about growth rose to 63 per cent from 55 per cent in July-September, revealed FICCI’s latest quarterly survey on manufacturing.

Those expecting a negative figure seem to be reducing, at just 11 per cent. However, manufacturing growth in India got dampened in November as the demonetisation move weighed on new work flows, buying activity and production while subdued inflationary pressure may prompt RBI to loosen policy, a monthly survey released earlier showed.

The Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) — a gauge of manufacturing performance — fell to 52.3, down from October’s 22-month high of 54.4. A reading above 50 points to expansion while one below signals contraction.

According to the FICCI survey, outlook on domestic demand remains uncertain as of now. “The slight improvement in the outlook for manufacturing production in the third quarter of the current financial year was attributable primarily to better outlook for exports compared to previous quarters,” the survey pointed out.

The proportion of respondents expecting higher exports in the third quarter of 2016-17 went up to 46 per cent as against 41 per cent in the previous quarter. Besides, over 43 per cent reported higher capacity utilisation in the last quarter. “Despite better capacity utilisation, the future investment outlook is not very optimistic. As for the third quarter of 2016-17, 77 per cent respondents reported that they don’t have any plans for capacity additions for the next six months, as against 73 per cent in the previous quarter,” the survey noted.

“Increased competition from imports, lack of demand from industrial sectors and original equipment manufacturers (OEMs) and shortage of credit are some of the major constraints which are affecting the expansion plans of the respondents.”

There is also a realisation that current demand is primarily from the government and a decline there will affect manufacturing growth.

In terms of order book, 48 per cent reported higher number for October-December, almost the same as that of the previous quarter.

The survey gauged expectations of manufacturers for the third quarter and mapped 12 major sectors, including auto, capital goods, cement and ceramics, chemicals and electronics and electricals.

Responses were taken from 332 manufacturing units from large and SME segments, with a combined annual turnover of over Rs 4 lakh crore.

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