India's Manufacturing Sector Shows Recovery in Q2 FY27 as 95% of Firms Report Stable or Higher Output

October 12, 2026

The India manufacturing sector Q2 FY27 showed a clear improvement in sentiment, with 95% of surveyed manufacturers reporting stable or higher production levels in FICCI's latest Quarterly Survey on Manufacturing, released on October 6, 2026. The figure was 77% in the previous quarter. FICCI also reported stronger manufacturing orders and higher capacity utilization.

The survey also records rising costs and a steady rather than accelerating investment outlook. The 95% figure represents manufacturers reporting stable or higher production, not a 95% increase in factory output. The survey covered approximately 225 manufacturing firms across nine sectors, representing both large enterprises and SMEs, with combined annual turnover exceeding INR 2 lakh crore.

What Does FICCI's Q2 FY27 Manufacturing Survey Reveal?

The survey covers July to September 2026 and shows a broad rebound in sentiment across the nine sectors it tracks. FICCI links the recovery partly to the easing effects of the West Asia crisis, while noting that some sectors are still affected. It describes "overall positive sentiments and stable domestic fundamentals for manufacturing growth". The survey reflects the views of participating firms, so it is best read as an indicator of direction, not as an official measure of output.

What Percentage of Indian Manufacturers Reported Stable or Higher Production?

About 95% of respondents reported stable or higher production, up from 77% in Q1 FY27. The category combines firms with unchanged production and firms with higher production, and the coverage reviewed does not separate the two. A reading of "stable" shows that firms avoided a fall in output. It does not show that they expanded it. This distinction matters for anyone reading the headline figure as evidence of a production boom.

What Does the Survey Indicate About Manufacturing Orders and Demand?

About 90% of respondents reported higher or stable orders, compared with 77% in the previous quarter. On exports, about 80% reported shipments at or above year-ago levels, up from 74%. FICCI said export diversification efforts by the government and industry "seem to be yielding results". Inventory levels were flat in a miscellaneous category of sectors, which FICCI attributed to low demand from geopolitical tensions and working capital limits. Demand recovery was therefore broad but not uniform.

How Did Manufacturing Capacity Utilization Change in Q2 FY27?

Average capacity utilization rose to about 75% from 72% in the previous survey. Glass reported the highest utilization at 88%, and machine tools the lowest at 68%. The gap between sectors shows that some manufacturers are running close to practical limits while others still have spare capacity. Hiring intentions also improved: about 43% of respondents plan to add workers in the next three months, up from 35%. About one-third of respondents reported a shortage of skilled workers.

By sector, FICCI expects strong growth in automotive and auto components, with respondents expecting growth of 10% to 20%. Machine tools and metal products are expected to see strong-to-moderate growth, and capital goods, chemicals, glass, electronics, electrical equipment and textiles moderate growth. These are expectations from respondents, not measured outcomes.

What Challenges Continue to Affect India's Manufacturing Recovery?

Cost is the main counterweight to the positive indicators. About 83% of respondents said production costs had risen as a share of sales, up from 79% in the previous quarter. FICCI attributed this mainly to higher raw material prices, energy costs, currency depreciation, and rising logistics and utility costs. The average borrowing rate reported by respondents rose to 9.1% from 8.9%, although about 90% said bank funding was adequate.

Respondents also cited geopolitical tensions, tariffs, trade restrictions and uncertain demand as barriers to expansion, along with skill shortages, raw material availability, logistics expenses and regulatory challenges. Manufacturers asked the government to lower logistics, energy and input costs, make credit cheaper for MSMEs, speed up regulatory approvals and act faster against cheap imports.

How Do Other Industrial Indicators Compare?

Other recent releases point the same way. The National Statistics Office reported that the Index of Industrial Production grew 8.0% year-on-year in August 2026, with manufacturing up 9.0% and 18 of 23 industry groups growing. Capital goods output rose 16.9%. Separately, the HSBC India Manufacturing PMI was 55.1 in September, up from 52.8 in August, with new orders growing at their fastest pace in seven months and input cost inflation accelerating. These are separate datasets with different methods from the FICCI survey, but they are consistent with a recovery in factory production, alongside continued cost pressure.

What Are the Implications for Manufacturing Investment and Capacity Expansion?

FICCI describes the six-month investment outlook as steady. Higher capacity utilization combined with firmer orders suggests that many firms are first using existing facilities more fully, while geopolitical and cost uncertainty keeps larger commitments cautious. The survey does not establish an immediate increase in greenfield investment.

For manufacturers evaluating new investments, higher capacity utilisation and stronger order books may support closer assessment of debottlenecking, machinery upgrades and production efficiency improvements before committing to major capacity additions. However, the survey does not establish that firms are prioritising these investments over greenfield projects. Capacity expansion becomes more likely where utilization is already high, as in glass, and where demand visibility is strongest, as in automotive and auto components.

A strong survey quarter shows momentum, not a mandate. The manufacturers best placed to benefit are those who convert higher utilization and firmer orders into disciplined, phased capacity decisions.

IMARC Engineering’s Perspective

The FICCI findings suggest a recovery in utilization more than a new wave of plant construction, and project planning should reflect that. At IMARC Engineering, we see three questions for manufacturers at this stage. First, how much production headroom remains within individual facilities, since sector-level capacity utilisation can indicate pressure on existing capacity but does not reveal the bottlenecks or expansion requirements of a particular plant. Second, which upgrades, such as automation, energy efficiency and process improvements, reduce operating costs when raw material prices, energy costs and logistics costs are all rising.

Third, which expansion options stay viable if demand weakens or trade conditions change, which favours phased, modular capacity over one large commitment. We support manufacturers with techno-economic feasibility studies, debottlenecking and modernization assessments, and DPR preparation, so that capacity decisions rest on utilization, cost and demand data and not on a single quarter's sentiment.