Demonetisation and massive de-stocking before the launch of the goods and services tax (GST) regime took a toll on the manufacturing sector that grew by just 1.2 per cent in the first quarter of FY18, as compared to the 5.3 per cent in the preceding quarter in FY17.
Until 2015, the sector saw the highest share of new hiring at 75-80 per cent, which came down to 50-60 per cent in 2016, said Munira Lolliwala, the Business Head of the Engineering, Manufacturing and Pharmaceutical division at TeamLease Services.
While rising automation has impacted job opportunities, the sector has also been hit by low demand and rise in costs, Lolliwala said. On top of this, the slow pace of private sector investments over the last two years hit critical levels during the demonetisation exercise that was launched in November last year. As a result, more than 60 per cent of TeamLease's clients operating in the sector have seen losses last year as outputs fell, she added.
TeamLease provides employment services to major corporates such as Dabur, ITC, Pfizer and Bayer, among others.
On the other hand, the unorganised sector has also been stressed due to increased competition. "While the number of small manufacturing units in the unorganised segment saw a rise of more than 45 per cent last year, the rise in jobs has not been commensurate with that," a senior MSME ministry official said.
As a result of this, there was underutilisation of capacity, which the government hopes to address by bringing out a comprehensive manufacturing policy soon. Commerce and Industry Minister Suresh Prabhu has said that this vacuum in capacity would addressed by focusing on exports from the sector.
However, manufacturing activity, calculated as part of the Purchasing Managers Index(PMI) showed an increase in August to 51.2 points, from 47.9 points in July. To cope with high workload, manufacturers hired extra staff at the fastest pace since March 2013, the survey showed.
Nevertheless, worries about the possibility of unexpected policy decisions weighed on the confidence of those surveyed for PMI and the level of sentiment fell from July's 11-month high.
After demonetisation and the GST roll-out, there was a buzz that the government could announce changes but such plans have been put on the back burner, claimed sources.