This annual article, third in the series1, presents the findings of quarterly Order Books, Inventories and Capacity Utilisation Survey (OBICUS) of manufacturing sector companies, conducted during October 2013 to March 2015 (covering 24th to 29th rounds). Average new orders of sample companies grew substantially during the reference period till Q2:2014-15 but went into contraction mode thereafter. The average raw material (RM) inventory to sales ratio and the average finished goods (FG) inventory to sales ratio fluctuated in the range of 22-25 per cent and 17-19 per cent respectively during the period. Both the ratios rose in Q4:2014-15 from the previous quarter and stood at higher levels, as compared to the position a year ago. Poor demand conditions were also reflected in the lower capacity utilisation (CU) in Q3:2014-15. The CU rose by more than 3 percentage points to 75.2 per cent in Q4:2014-15, partly due to seasonality coupled with pick up in the production of consumer non-durable items. I. Introduction: The Reserve Bank of India tracks several macroeconomic variables to assess the aggregate demand-supply position in the economy and formulates its monetary policy stance accordingly. Data on sales and profit margin of the manufacturing sector, an important segment of the economy, are available as part of the disclosures of such companies. However, information relating to order books, level of capacity utilisation and finished goods’ inventory level, which are also reflective of incipient demand conditions, are generally not readily available. To bridge this data gap, the Reserve Bank has been conducting Order Books, Inventories and Capacity Utilisation Survey (OBICUS) of Indian manufacturing companies on a quarterly basis since 2008. Results of the survey rounds are regularly disseminated on the RBI website. The sampling method used for OBICUS is purposive (non-random) and the companies have been empanelled to have a good size-mix of industries. The survey schedule is canvassed among a fixed panel of 2,500 manufacturing companies sector, which is common in many business tendency surveys. However, responding to the survey is voluntary and it has not been possible to obtain responses from all the companies and in all the quarters. The information collected in the survey includes quantitative data on new orders received during the reference quarter, backlog orders at the beginning of the quarter, pending orders at the end of the quarter, total inventories with breakup of work-in-progress (WiP) and finished goods (FG) inventories at the end of the quarter and item-wise production in terms of quantity and value during the quarter vis-à-vis the installed capacity from the targeted group. The level of capacity utilisation (CU) is estimated from the above data. In this article, position of order books, inventories and capacity utilisation of Indian manufacturing industry during October 2013 to March 2015 is based on the survey round 24 (pertaining to Q3:2013-14) to round 29 (pertaining to Q4:2014-15), with emphasis on latest estimates available for the respective quarters through different rounds. The related data tables are presented in Annex. II. Findings of Survey: II.1 Order Books Growth Average new orders of sample companies grew by more than 12 per cent in Q3:2013-14 on a year-on-year (y-o-y) basis and this high growth phase continued till Q2:2014-15. However, the position could not be sustained as new orders growth contracted in H2:2014-15 tracking falling sale volumes of the companies. On a quarter-on-quarter (q-o-q) basis, new orders growth fluctuated between marginal contraction and expansion in FY:2014-15. The q-o-q growth moved into the positive territory in Q4:2014-15 (Chart 1). II.2 Inventory to Sales Ratio During the period under reference, the average raw material (RM) inventory to sales ratio and the average finished goods (FG) inventory to sales ratio fluctuated in the range of 22-25 per cent and 17-19 per cent respectively. Moreover, the RM inventory to sales ratio remained lower on a y-o-y basis till Q3:2014-15. The FG and RM inventory to sales ratios rose in Q4:2014-15 from the previous quarter. Further, both these ratios stood at a higher level in Q4:2014-15, as compared to the position a year ago (Chart 2). II.3 Capacity Utilisation Level of capacity utilisation in the Indian manufacturing industry continued to show declining trend since 2011-12. Further, the average (4-quarter) CU in FY:2014-15 was lower (72.6 per cent) than that of FY:2013-14 (73.5 per cent). Reflecting seasonal movements, CU recorded high values in the last quarter of the financial year (FY) and found to fall in the subsequent quarter, i.e., Q1 of the following FY. CU picked up in Q4:2014-15 by more than 3 percentage points from its previous quarter, partly reflecting seasonality. After adjusting for seasonality, the CU at aggregate level rose marginally in Q4:2014-15 from Q3:2014-15 (Chart 3). The movements in CU remained broadly in line with the movements in the de-trended IIP for manufacturing sector (Chart 4). A further disaggregated analysis of CU for use-based categories indicates co-movement across all the categories except for the intermediate goods category, wherein it moved in the opposite direction in H2:2014-15. For both intermediate goods and basic goods categories, CU level remained above 70 per cent in all the quarters under the period of study. In Q4:2014-15, the rise in the CU at overall level from its previous quarter was largely driven by sharp rise in CU level in the consumer non-durables sector (63.7 per cent to 73.8 per cent). This is followed by the consumer durables (67.7 per cent to 72.6 per cent) and the basic goods (74.5 per cent to 77.7 per cent) segments. The average CU level of basic goods and intermediate goods remained higher at 75.3 per cent and 76.2 per cent respectively in FY:2014-15 as compared to other use-based categories, viz., consumer durables (70.0 per cent), capital goods (67.4 per cent) and consumer nondurables (65.9 per cent) (Chart 5). III. Validation of results of different rounds of Surveys (Round 24 to Round 29): The estimated survey indicators undergo some changes from one round to another due to changes in the constituent sample of companies2 (ranges are indicated in respective tables). However, the above changes may not pose much problem as long as the trend observed in earlier rounds is retained. It may also be mentioned that the direction of changes in the key indicators have more relevance rather than their absolute values for the decision makers. Overall, it is observed that there were some variations in the key indicators due to change in the constituent set of companies but the broad trend remained similar. The new orders growth in Q3:2013-14 to Q4:2014-15 reported in rounds 24 to 29 moved in a reasonable range and its direction remained similar. Further, the estimates appeared to be quite close in the high growth phase (Q3:2013-14 to Q2:2014-15). Movements of CU also remained consistent across the survey rounds, though the estimates of CU in the round 29 have generally tended to be higher. Estimates of FG inventory to sales ratio for a particular quarter remained generally range bound in different rounds of the survey. However, the estimates for Q4:2013-14 and Q1:2014-15, as derived from various rounds of the survey varied in a wider range. IV. Concluding Observations The demand conditions in the Indian manufacturing sector improved during 2013-14 and in the first half of 2014-15. However, it weakened in the second half of 2014-15. The finished goods inventory level (as percentage to sales) declined progressively in FY:2013-14 but rose thereafter in line with slowing demand conditions. The CU level in the manufacturing sector is on a declining path since 2011-12. The CU in FY:2014-15 generally remained at lower levels than those of FY:2013-14. However, it picked up in Q4:2014-15 by more than 3 percentage points, partly reflecting the seasonality and also on account of a sharp increase in CU in consumer non-durables sector. Annex - Data Tables Table 1: Final Estimates for Order Books Y-o-Y growth | Quarter | Based on | No. of companies | Order Books Y-o-Y growth (%) | Range# | Q3:2012-13 | Round 24 | 504 | -4.9 | NA | Q4:2012-13 | Round 25 | 436 | -6.7 | (-9.1,-6.7) | Q1:2013-14 | Round 26 | 502 | -3.8 | (-6.2,-3.8) | Q2:2013-14 | Round 27 | 516 | 9.5 | (4.3,9.5) | Q3:2013-14 | Round 28 | 530 | 12.1 | (11.3,13.5) | Q4:2013-14 | Round 29 | 518 | 9.8 | (7.4,9.8) | Q1:2014-15 | Round 29 | 518 | 9.8* | (9.8,12.0) | Q2:2014-15 | Round 29 | 518 | 9.4* | (5.6,9.4) | Q3:2014-15 | Round 29 | 518 | -3.6* | (-3.6,-2.3) | Q4:2014-15 | Round 29 | 518 | -0.3* | NA | *These growth figures are provisional estimates from Round 29. #Range indicates the high and the low of the indicator in various rounds. | Table 2: Final Estimates for Finished Goods (FG) Inventories to Sales Ratio | Quarter | Based on | No. of companies | FG Inv/Sales (%) | Range# | Q3:2012-13 | Round 24 | 986 | 15.5 | NA | Q4:2012-13 | Round 25 | 879 | 18.8 | (18.0,18.8) | Q1:2013-14 | Round 26 | 1017 | 19.7 | (19.6,20.0) | Q2:2013-14 | Round 27 | 1074 | 19.3 | (18.8,19.3) | Q3:2013-14 | Round 28 | 1090 | 17.2 | (17.2,17.6) | Q4:2013-14 | Round 29 | 1070 | 16.7 | (16.6,19.9) | Q1:2014-15 | Round 29 | 1070 | 17.8* | (17.4,20.5) | Q2:2014-15 | Round 29 | 1070 | 19.7* | (17.7,19.7) | Q3:2014-15 | Round 29 | 1070 | 18.4* | (17.0,18.4) | Q4:2014-15 | Round 29 | 1070 | 19.4* | NA | *These ratios are provisional estimates from Round 29. #Range indicates the high and the low of the indicator in various rounds. | Table 3: Final Estimates for Capacity Utilisation (CU) | Quarter | Based on | No. of companies | CU level (%) | Range# | Q3:2012-13 | Round 24 | 1191 | 74.6 | NA | Q4:2012-13 | Round 25 | 1049 | 78.0 | (77.0,78.0) | Q1:2013-14 | Round 26 | 1224 | 71.6 | (71.6,72.5) | Q2:2013-14 | Round 27 | 1288 | 72.8 | (72.8,74.3) | Q3:2013-14 | Round 28 | 1297 | 73.5 | (73.4,74.6) | Q4:2013-14 | Round 29 | 1273 | 76.1 | (74.2,76.1) | Q1:2014-15 | Round 29 | 1273 | 70.2* | (69.4,70.2) | Q2:2014-15 | Round 29 | 1273 | 73.2* | (71.0,73.2) | Q3:2014-15 | Round 29 | 1273 | 72.0* | (71.7,72.0) | Q4:2014-15 | Round 29 | 1273 | 75.2* | NA | *These CU levels are provisional estimates from Round 29. #Range indicates the high and the low of the indicator in various rounds. |
|