Manufacturing poised for strong growth, expansion as domestic demand surges post-GST rate cuts: FICCI

India’s manufacturing sector is poised for sustained growth and increased optimism, FICCI’s quarterly survey on manufacturing shows. In comparison to the first quarter of FY26—when 77% of respondents reported similar or higher production levels—about 87% of respondents reported similar or higher levels of production, the survey noted.

The renewed wave of optimism is driven by the anticipation of increased orders in the second quarter, as 83% of respondents expect a sequential increase in orders following the recent GST rate cuts. “This is one of the highest percentages witnessed in the last many quarters,” the survey says, which has collected responses from manufacturing units from both large and SME segments with a combined annual turnover of over ₹3 lakh crore.

According to the survey, the existing capacity utilisation is close to 75%, reflecting sustained economic activity in the sector. The future investment outlook is also positive, with over 50% of respondents indicating plans for investments and expansions in the next six months.

The challenges faced by respondents in expanding their capacities include global and geopolitical factors (such as tariffs, trade restrictions, and economic uncertainty), operational issues (including labour availability, raw material shortages, and regulatory challenges), and others. In the first and second quarters of the financial year, more than 90% of respondents reported similar or higher inventory levels.

On the exports front, about 61% respondents reported higher or the same level of exports in the first quarter of FY26. In the second quarter, more than 70% of respondents expect their exports to be higher or the same as those of the previous year’s similar quarters. 57% of the respondents plan to hire an additional workforce within the next three months.

The average interest rate paid by the manufacturers has been reported to be 8.9%. A little over 81% of respondents reported having sufficient funds available from banks for working capital or long-term capital.

Production costs for manufacturers in the first half of FY26 continue to be high, according to the survey. Over 50% of respondents reported an increase in production costs as a percentage of sales, consistent with the previous quarter’s findings, indicating that costs remain elevated.

The increase in production costs compared to last year is mainly due to higher raw material costs, including key components, bulk chemicals, metallurgical coke, and iron ore, as well as rising labour expenses and increased logistics, power, and utility costs.

Most sectors, however, are not experiencing a labour shortage at factories, as fewer than 80% of respondents reported having no issues with workforce availability. The remaining 20% believe there is still a shortage of skilled workers in their sector, and efforts need to be increased at both the government and industry levels.