India's manufacturing sector is poised to witness recovery in the July-September quarter, even as hiring outlook for the segment remains bleak, according to a survey. Industry body FICCI's latest quarterly survey on manufacturing points towards recovery of the manufacturing sector in the second quarter ended September as compared to the previous quarter, with a rise in percentage of respondents reporting higher production.

The proportion of respondents reporting higher output during July-September rose to 24 per cent, as compared to 10 per cent in the previous quarter.

Besides, the percentage of respondents expecting low or same production is 74 per cent in the second quarter which was 90 per cent in the first quarter of 2020-21.

However, hiring outlook for the sector, though improving slightly, shows a bleak picture as 80 per cent of the respondents mentioned that they are not likely to hire additional workforce in the next three months.

"This presents slightly improved situation in the hiring scenario as compared to the previous quarter Q-1 of 2020-21, where 85 per cent of the respondents were not in favour of hiring additional workforce," FICCI said.

Moreover, the average interest rate paid by manufacturers has reduced slightly to 9.2 per cent per annum as against 9.4 per cent per annum during the last quarter and the highest rate is reported to be 12.5 per cent. The recent cuts in repo rate by the RBI has not led to a consequential reduction in the lending rate as reported by 55 per cent of the respondents, found the survey.

Based on expectations in different sectors, all the sectors except medical devices are likely to register low growth in Q-2 2020-21. The primary reason for such depressed expectations seems to be the imposition of lockdown, subdued demand, restricted exports and other guidelines in place as a response towards COVID-19 outbreak.

The survey covered wide areas of relevance for manufacturing like exports, capacity utilisation, ongoing restrictions, availability of labour/workforce and others. In many of these areas there are signs of operations inching towards normal and in coming months could see better performance.

The survey assessed the sentiments of manufacturers for July-September 2020-21 for 12 major sectors namely automotive, capital goods, cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics & electricals, leather and footwear, medical devices, metal & metal products, paper products, textiles, textile machinery, and miscellaneous.

Responses were drawn from over 300 manufacturing units from both large and SME segments with a combined annual turnover of around Rs 3 lakh crore.

The survey showed that overall capacity utilisation in manufacturing has risen to 65 per cent as compared to 61.5 per cent in Q4 2019-20.

The future investment outlook, however, is subdued as only 18 per cent respondents reported plans for capacity additions for the next six months as compared to 22 per cent in the previous quarter, the survey revealed.

High raw material prices, high cost of finance, shortage of skilled labour and working capital, high logistics cost, low domestic and global demand due to imposition of lockdown across several countries, lack of financial assistance, are some of the major constraints affecting expansion plans of the respondents.

Significantly, the percentage of respondents expecting increase in exports in July-September has increased substantially to 24 per cent when compared to the previous quarter, wherein merely 8 per cent respondents were expecting a rise in exports. Also, 19 per cent are expecting exports to continue to be on same path as that of same quarter last year, the survey noted.