India’s manufacturing shifts into higher gear as output, orders and hiring rise: FICCI

NEW DELHI: Indian manufacturing appears to be shifting into a higher gear, with a sharp improvement in production, order books, capacity utilisation and hiring intentions during the second quarter of FY27, according to the 71st edition of the Federation of Indian Chambers of Commerce & Industry (FICCI) Quarterly Survey on Manufacturing.

The survey found that 95 per cent of manufacturers reported either higher or stable production in Q2 FY27, up sharply from 77 per cent in the previous quarter. The assessment covered large enterprises and SMEs with a combined turnover of more than Rs 2 lakh crore.

The improvement comes despite geopolitical uncertainty, trade restrictions and tariff-related pressures, pointing to stronger domestic demand and improving industrial sentiment.

Order books also improved during the quarter, with 90 per cent of respondents reporting higher or stable order volumes, compared with 77 per cent in Q1 FY27.

The stronger order pipeline pushed average capacity utilisation to around 75.5 per cent from 72 per cent in the previous quarter.

The Glass sector recorded the highest average capacity utilisation at 88 per cent, followed by Miscellaneous manufacturing at 81 per cent, Metal and Metal Products at 78 per cent, Capital Goods at 76 per cent and Textiles, Apparels and Technical Textiles at 75 per cent.

Automotive and Auto Components recorded 73 per cent utilisation, while Chemicals and Allied Products stood at 71 per cent. Electronics and Electricals reported 70 per cent and Machine Tools 68 per cent.

The growth outlook remained positive across sectors, with Automotive and Auto Components, along with Machine Tools and Metal and Metal Products, showing particularly strong-to-moderate expectations.

Export performance also showed improvement. Around 80 per cent of manufacturers reported higher or stable export volumes in Q2 compared with the year-earlier period, up from 74 per cent in Q1.

Hiring intentions strengthened alongside the production recovery. About 43 per cent of respondents said they planned to increase their workforce over the next three months, compared with 35 per cent in the previous quarter.

Automotive and Glass led hiring intentions, with all respondents in both sectors planning to recruit. About 67 per cent of Machine Tools manufacturers also expected to add staff.

However, skill shortages remain a concern, with 33 per cent of respondents reporting a shortage of skilled workers. The survey highlighted the need for greater industry-government collaboration to address the gap.

The recovery is being accompanied by persistent cost pressures. About 83 per cent of manufacturers reported an increase in production costs as a share of sales, compared with 79 per cent in Q1.

Manufacturers cited higher raw material, energy and fuel costs, rupee depreciation and rising freight and logistics expenses among the key factors squeezing margins.

Credit availability, meanwhile, remained relatively comfortable. About 90 per cent of respondents said they had sufficient access to bank credit for working capital and long-term investment.

Average interest rates on industrial loans rose marginally to 9.1 per cent from 8.9 per cent in the previous quarter. Rates ranged from 8.4 per cent for Glass to 9.8 per cent for Metal and Metal Products.

Inventory levels were also stable or higher for 89 per cent of respondents.

The Automotive and Auto Components sector emerged among the strongest performers, with all respondents reporting stable or higher output and orders, while also indicating capacity expansion and hiring plans. Rising aluminium, transport and other raw material costs remained key concerns.

Capital Goods manufacturers reported higher output at 72 per cent of firms and increased orders at 86 per cent. However, 86 per cent were not planning capacity expansion over the next six months, while 57 per cent had frozen hiring. Lower GST rates, easier credit and stronger R&D incentives were among the sector’s demands.

Chemicals and Allied Products saw higher output at 61 per cent of respondents, while 93 per cent reported stronger order books. Yet 78 per cent were holding back on capacity expansion and 65 per cent were not planning fresh hiring amid geopolitical uncertainty.

Electronics and Electricals recorded higher output at 64 per cent of firms and increased orders at 82 per cent. More than 55 per cent planned capacity expansion, although 70 per cent were holding back on hiring. Rising freight and component costs were cited by all respondents as production-cost pressures.

Glass reported particularly strong sentiment, with all respondents planning capacity expansion and hiring despite all of them also reporting higher production costs.

Machine Tools manufacturers reported higher output and orders across the board, with more than 65 per cent planning capacity additions and 67 per cent expecting to hire. Raw material costs and supply chain disruptions remain major challenges.

Metal and Metal Products saw production rise or remain stable for more than 90 per cent of respondents, while 77 per cent reported higher orders and the same proportion planned capacity expansion. Energy costs and cheaper imports remain concerns, with the sector seeking power tariff rationalisation and stronger anti-dumping measures.

Textiles, Apparels and Technical Textiles reported stable or higher production at 75 per cent of firms and stronger orders at 88 per cent. However, 57 per cent were not planning capacity additions and 62 per cent were not hiring, citing raw material and logistics costs.

The Miscellaneous sector also saw improvement, with 60 per cent of respondents reporting higher output and 80 per cent stable or higher orders. Working capital constraints and geopolitical uncertainty in the Middle East, however, were keeping 80 per cent of firms from expanding capacity or hiring.

The latest FICCI survey therefore paints a manufacturing sector that is recovering across production and demand, but still navigating a difficult cost environment. The combination of stronger order books, rising utilisation and improving hiring intentions suggests firmer momentum, while input costs, skills shortages and global trade uncertainty remain the main brakes on a broader industrial upswing.