Manufacturing costs remain high amid rising raw material, wage, and freight charges: FICCI survey

Manufacturing cost remains elevated, with 60% of respondents reporting a rise in production costs as a percentage of sales. This trend mirrors the previous quarter’s findings, highlighting consistent cost pressures in the sector, according to the latest quarterly survey on manufacturing (QSM) released today by the Federation of Indian Chambers of Commerce and Industry (FICCI).

The rise in production cost is attributed to rising raw material prices, specifically for materials like iron/steel, rubber, carbon and chemicals like ethylene oxide and caustic soda. Other factors responsible for this elevated cost are rising labour costs, increased wages, and a surge in freight and transportation charges. Additionally, the ongoing depreciation of the rupee has also led to higher import costs.

The major sectors in manufacturing include Automotive & Auto Components, Capital Goods, Chemicals, Fertilisers & Pharmaceuticals, Electronics & Electricals, Machine Tools, Metal & Metal Products, Textiles and Apparels & Technical Textiles.

“On an average, the sector is utilising 84% of its capacity, which is higher than last year as reported by 60% respondents,” the survey states.

Higher production levels were reported by 83% of respondents in Q3 FY25, either matching or exceeding previous figures, compared to 73% in Q3 FY24 who had reported a rise in production levels. Meanwhile, 83% of respondents expect a higher number of orders in Q3 FY25 compared to the previous quarter.

Respondents faced several challenges in expanding capacities, including rising raw material costs, high interest rates etc, adding to financial pressure. Weak domestic and export demand is expected to further fuel market uncertainties. The shortage of skilled labour remains a major concern, along with regulatory hurdles such as prolonged approval processes and non-tariff barriers. “Additionally, limited access to advanced machinery, high land prices, and competitive pressures from countries benefiting from trade advantages are impacting pricing and profitability, making expansion efforts difficult.”

The survey gatherers responses from manufacturing units across both large and SME segments, collectively accounting for an annual turnover exceeding ₹4.7 lakh crores. Over 75% of respondents expect inventory levels in Q3 2024-25 to remain stable or increase.

Around 65% respondents reported higher exports in Q2 FY 2024-25, and in Q3 2024-25, more than 70% expect exports to be higher compared to the same quarter in the previous year.

“The average interest rate paid by the manufacturers has been reported to be 9.5%. A little over 80% of respondents reported sufficient availability of funds from banks for working capital or long-term capital,” the survey adds.