The acute shortage of liquidity, rising interest rates, and the slowdown in demand have hit the industries in Madhes Province badly in the first half of the current fiscal year. As industries grapple with multiple issues, their capacity utilization dropped by 5.36 percent points in the first half of FY 2022/23. The average capacity utilization of industries in Madhes Province stood at 44.56 percent in the first half of FY 2022/23 compared to 49.92 percent during the same period of the last fiscal, states a new report of Nepal Rastra Bank (NRB). The decline in the average capacity utilization of the industries in the province is due to the shortage as well as the price rise of raw materials, says the NRB report. As the supply of raw materials remained not easy and the construction sector came to a standstill due to the economic recession, the industrial production and activities in the Madhes Province suffered in the first half of this fiscal.

“The capacity utilization of the industries producing vegetable ghee and oil, rice flour, beverages, cement, iron rods, and medicinal products has decreased compared to the last fiscal,” says the NRB report.

According to the NRB report titled “Provincial Economic Activities Report-Koshi Province”, the liquor industry has the highest capacity utilization of 96.32 percent, while the vegetable ghee industry has the lowest capacity utilization of 3.85 percent. The capacity utilization of the wheat flour industry stood at 91.69 percent, the aluminum industry at 71.25 percent, the iron rod industry at 64.13 percent, the soap industry at 63.43 percent, and the soft drink industry at 37.23 percent. The capacity utilization of the soybean oil industry stood at 28.63 percent, the synthetic yarn industry at 6.65 percent, the animal feed industry at 37.87 percent, and the steel industry at 13.90 percent. The slowdown in the construction sector has badly hit the cement industry whose capacity utilization, according to the NRB report, has fallen to zero in this fiscal year. The capacity utilization of the cement industry during the first half of the last fiscal was 98.3 percent. Similarly, the capacity utilization of the iron rod industry and vegetable ghee industry also declined in this fiscal. With industries operating below capacity, the bank and financial institutions’ (BFIs) loan disbursement to them grew marginally in the first half of FY 2022/23.  The BFIs’ loan disbursement to industries surged by 1.5 percent to Rs 114.02bn. The BFIs’ loan to the industrial sector had stood at Rs 112.34bn during the first half of FY 2021/22. Of the total industrial loans disbursed by the BFIs in Madhes Province, Parsa district has the highest share of 59.97 percent while Saptari district has the lowest share of 2.32 percent. As the majority of industries are based in the Parsha district, the BFIs’ disbursement of loans to the district stood at Rs 68.39bn. Of the total loans, the share of the non-food-producing sector is the highest. The BFIs disbursed 53.01percent of total industrial loans) to the non-food-producing sector. The agriculture sector was the second highest recipient of industrial loans with the BFIs disbursing 28.98 percent of loans. The BFIs’ loans to the electricity and gas sector surged by 90.9 percent, the mining sector by 43 percent, and the non-food-producing sector by four percent. However, loan disbursement to the construction sector declined by 50 percent in the first half of the current fiscal.