Indian manufacturing sector shows improved capacity utilisation
The Reserve Bank of India's latest Order Books, Inventories and Capacity Utilisation Survey indicates a notable improvement in the manufacturing sector for Q2:2025-26. This reflects stronger demand and a positive outlook among firms.
Capacity utilisation on the rise
The survey for Q2:2025-26 reveals that the average capacity utilisation (CU) rate in the manufacturing sector increased to 74.5 percent, up from 72.8 percent in the preceding quarter.
This marks the third consecutive quarter of expansion, driven primarily by robust domestic demand and a gradual recovery in export orders.
Firms reported higher production levels to meet the growing order pipeline, particularly in sectors such as automotive, pharmaceuticals, and consumer durables.
The improvement in CU suggests a more efficient use of existing production capabilities and a positive response to market signals.
This sustained upward trend is a key indicator of economic recovery and business confidence, signaling potential for further investment in the near future.
The survey covered 1,200 manufacturing companies, providing a comprehensive snapshot of industrial activity across various sub-sectors and firm sizes.
Order books expand, inventories adjust
New orders registered a significant increase, with the Order Books to Sales Ratio (OBSR) rising to 1.15 from 1.08 in Q1. This expansion in new orders is a crucial factor underpinning the higher capacity utilisation.
Correspondingly, the Finished Goods Inventory to Sales Ratio (FGISR) saw a marginal decline to 0.75 from 0.78, indicating efficient inventory management in response to accelerated sales.
Raw Material Inventory to Sales Ratio (RMISR) remained stable at 0.60, suggesting adequate input availability without excessive stockpiling.
The balance of outstanding orders points to continued production momentum in the coming quarter.
A cautious but positive outlook
The sustained improvement in manufacturing capacity utilisation and order books provides a solid foundation for economic growth.
While global uncertainties persist, the domestic demand strength offers a crucial buffer.
This data suggests the sector is well-positioned for moderate expansion, though inflationary pressures from raw materials warrant close monitoring.