India Inc has been able to limit the inventory build-up in their units to manageable levels despite slackening export orders and sluggish domestic demand, according to a survey conducted by PHD Chamber.  According to this survey, around 31% of units have reported a low inventory build-up of less than 10%. This has been possible as companies have appropriately undertaken production cuts to suit prevailing demand conditions.  Almost 54 % of the units do have unsold stocks leading to inventory build-up of between 10-30%. Around 15% of companies have inventory load of 30%. Many such companies had built-up capacities in view of future demand which did not materialise. The pile-up can be seen mainly in textiles, chemicals, steel, metals, auto, sanitary-ware, ceramic tiles and building materials.

The survey reveals that for some of the units, subdued demand conditions and deferred purchases have led to idle capacity and inventories pile up which is causing capital to be locked up in unsold goods and leading to storage costs. This is forcing the company to borrow more at probably high interest rates at a time of credit crunch thereby adversely affecting the bottom line of the company. 

Around 75% of members have reported a decline in profit margins of their units. Around 25% of units have remained more or less unaffected by the slowdown and it is business as usual with their sales remaining the same during the past six months.

According to the survey, a break up shows that a significant 49% of the companies indicate the decline in profit margin ranging from 1-20% while another 28% have found their mark up going down by 21-40%. Around 23% of the units have reported that their profits have gone down by more than 40% during the last six months. 

In such a situation, it is felt that there is a need to rekindle business sentiment by contemplating bold demand inducing measures.  No doubt, the government has, over the last six months, announced tax incentives packages- monetary and fiscal- including tax concessions and cut in key lending rates to tide over the slowdown in the economy.   But the industry expects more to stimulate demand.

To revive industry and prevent the inventory from piling up; the respondents are of the view that there is an impelling need to reinvigorate the economy by improving the investment climate .According to the survey demand needs to be augmented in the domestic market to compensate for the shortfall in export orders from USA and Europe. 

In this context, the corporates feel that there is a need to augment public investment in infrastructure like roads, ports, air transport etc to revive the economy and ensure early completion of various components of the national highway development projects. The government should stimulate demand for rural and affordable housing by providing easy access to loans.  Besides, credit availability should be ensured to industry at cost effective rates as units are facing shortage of working capital. Reducing total tax burden on the manufacturing sector from around 30% to 25% will also help to stimulate demand.

Anjula Singh Solanky
Dy. Secretary-Media Relations
PHD Chamber of Commerce and Industry