30% firms operating at 70% plus capacity utilisation, 45% of firms expect capacity utilisation to be above 70% in the near term: FICCI Survey

FICCI-Dhruva Advisors Industry Survey: Rebooting the Indian Economy. 30% firms operating at 70% plus capacity utilisation, 45% of firms expect capacity utilisation to be above 70% in the near term. Concerns on managing costs, weak demand and financial liquidity will continue during unlocking phase

30% firms operating at 70% plus capacity utilisation, 45% of firms expect capacity utilisation to be above 70% in the near term: FICCI Survey

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After going through one of the strictest lockdowns seen anywhere in the world, the Indian economy is now gradually opening up. With ‘Unlock 1.0’ being announced by the government, we are seeing a phased resumption of economic activities with businesses across sectors coming back on stream. The opening up of the economy is also accompanied by implementation of a series of measures that were announced earlier as part of the economic package by the Finance Minister.

Both these measures – the opening up of the economy and implementation of the economic package – have started showing results on the ground and initial signs of improvement in the performance of businesses are now visible. Results of a survey conducted jointly by FICCI and Dhruva Advisors highlight this trend. While the green shoots of recovery are being seen, it is important to emphasise that sustaining this improvement in the operational parameters of businesses will require continuous support from the government. The support is particularly needed in the realm of strengthening market demand in the absence of which this initial recovery may fizzle out.

The FICCI – Dhruva Advisors industry survey was conducted in the month of June 2020 and saw participation of over 100 CxOs from across sectors.

The results of the survey show that while currently close to 30% of the firms are operating at 70% plus capacity utilisation, nearly 45% of the firms expect capacity utilisation to be above 70% in the near term.

Unlocking of the economy is starting to have a positive impact on exports, cash flows, order books and supply chains. 22% of the respondents have said that exports have improved in recent times. 25% have reported a positive impact of unlocking of the economy on order books and 21% have confirmed improvement in cash flows. Nearly 30% of the firms are seeing their supply chains getting back on track.

As a reference, it may also be noted that in the April edition of this survey only 5% of the companies were expecting an increase in exports, 7% had reported increase in order books and 10% expected an improvement in cash flows.

Commenting on the results of the survey Dr Sangita Reddy, President, FICCI said, “These numbers are on expected lines and underscore the nascent recovery that is currently underway. Given the deep impact on the economy and industry, any improvement will be gradual and with time we hope to see these results improving. Given the evolving situation, it is important that we continue to take measures that are supportive of businesses enabling them to tide over the current crisis as well as prepare well for the long-term opportunities.” 

 

Mr Dinesh Kanabar, CEO, Dhruva Advisors said, “The survey results show an improvement in sentiments with the unlocking and the implementation of the stimulus package; while this is very welcome, more radical steps need to be undertaken by the government to get the economy back on the growth trajectory, particularly for the sectors which are deeply impacted. The survey is a clear indicator that we are on a revival path and should now address the key challenges confronted by India Inc i.e. managing costs, weak demand, financial liquidity and also, India Inc’s overwhelming expectation from the government i.e. tax relief/ incentives, ease of compliances.”

 

Survey results further show that on strategic issues like M&A and FDI, majority of the firms still plan to wait for 6-12 months before decision making. In the April edition of the survey, 54% of the companies had reported that they would look at M&A in the long term. In June this figure has moved to 75% – a reflection of the recessionary conditions and fast changing business dynamics.

 

In terms of the challenges that firms foresee they will continue to face even during the unlocking phase, managing costs, weak demand and financial liquidity remain the top three items with 60%, 59% and 57% reporting the same. Some of the survey respondents have also alluded to the second wave of COVID-19 as a challenge they foresee that could affect businesses going ahead. A sudden stop on the imports from China, given the most recent developments, also figured in the feedback received as part of the survey on challenges that could impact businesses.

 

On the economic package related questions, the feedback from respondents is on the conservative side. Only 1 in 5 companies said that the Emergency Credit Line Guarantee Scheme has started yielding results. The interest rate reduction by banks has also benefitted just about a quarter of the firms with the gains being modest for most and in the range of 25-50 basis points.

 

The results on questions related to migrant workers show some interesting trends. While majority (53%) of the respondents believe migrant workers will come back as businesses have restarted, industry is requesting for provision of concessional transportation, availability of low rental housing near work-sites, adequate healthcare and medical facilities and subsidised meal programs to be provided by the government to encourage workers to return. Further, like MNREGA in rural areas, large scale public works program for city cleaning, sanitation and plantation of trees can be initiated in urban areas as these would generate jobs for the informal sector workers, according to the survey participants.

 

On income tax refunds, nearly 36% of the respondents said that they have started receiving income tax refunds from the government. Almost an equal proportion are saying that the measures taken towards ease of doing business have started yielding results.

 

On the jobs front, nearly 32% of the firms have reported that they see a job loss of over 10% from their company’s perspective. In April edition of the survey, this figure was close to 40%.

 

Finally on the demand generation side, which is the key to sustain the nascent recovery, companies have suggested enhanced cash transfers to the vulnerable sections of society, reduction in GST rates on a temporary basis, widening of the income tax slabs to leave more money in the hands of the people, greater impetus to housing, infrastructure and auto sectors and support to state governments for purchase of buses for city transportation amongst other areas.

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