India’s manufacturing sector showed a strong recovery in the July-September quarter of FY27, according to the latest survey by the Federation of Indian Chambers of Commerce and Industry (Ficci).

About 95 per cent of manufacturers reported higher or stable production in Q2FY27. This was a sharp improvement from 77 per cent in the previous quarter.

The survey also showed a recovery in demand. Around 90 per cent of respondents reported higher or stable orders, compared with 77 per cent in April-June.

Capacity Utilisation Improves

Average manufacturing capacity utilisation increased to around 75 per cent, up from 72 per cent in the previous quarter.

Glass recorded the highest capacity utilisation at 88 per cent among the nine sectors covered. Machine tools recorded the lowest at 68 per cent.

Export performance also improved. Around 80 per cent of manufacturers reported overseas shipments at or above last year’s levels. This was higher than 74 per cent in Q1FY27.

Ficci said export diversification by the government and industry is helping manufacturers access new markets.

Rising Costs Remain a Concern

Despite the recovery, higher production costs remain a major challenge. Nearly 83 per cent of manufacturers reported an increase in production costs as a share of sales. The figure was 79 per cent in the previous quarter.

Manufacturers cited higher raw material and energy costs, currency depreciation, logistics expenses and utility costs as key reasons for the increase.

Geopolitical uncertainty is also making companies cautious about expanding capacity. Tariffs, trade restrictions, demand uncertainty, skill shortages and raw material availability remain major concerns.

Hiring Outlook Improves

The manufacturing sector recovery is also supporting employment plans. About 43 per cent of manufacturers said they plan to increase their workforce over the next three months. This was up from 35 per cent in the previous quarter.

Around 67 per cent of respondents said they were not facing major labour shortages. However, 33 per cent reported a shortage of skilled workers.

The automotive and auto components sector is the only segment where manufacturers expect strong growth of 10-20 per cent.

Industry Seeks Government Support

Manufacturers have urged the government to reduce logistics, energy and input costs. They also want cheaper and easier credit for micro, small and medium enterprises.

The industry has called for faster regulatory approvals and stronger action against low-priced imports.

Overall, the manufacturing sector recovery remains positive, but rising costs and global uncertainty could slow investment and capacity expansion in the coming months.