How to boost India's manufacturing growth? KPMG has an idea
What's the story
A recent KPMG report has revealed that a sustained 30% improvement in workforce productivity could account for nearly 35% of India's future manufacturing output. The study emphasizes that productivity is the most potent growth lever for the long-term expansion of the sector. It also highlights how productivity improvements have a more significant and lasting impact than growth driven solely by scale or demand.
Growth lever
Productivity gains embed permanently into system
The KPMG report highlights that productivity gains "embed permanently into the system, raising output, margins, and competitiveness year after year."
It also found a strong link between workforce productivity and business performance in its analysis of over 130 large Indian manufacturing companies over a decade.
Companies with higher-than-average productivity growth recorded net profit growth of around 10-11% annually as opposed to about 7% for average-productivity firms.
Financial benefits
Productivity improvements uneven across India's manufacturing sector
The KPMG report also highlights that productivity-leading companies witnessed a market capitalization growth of around 19% CAGR, compared to nearly 10% for average-productivity organizations.
These firms achieved over 50% higher profitability growth and double the market-cap expansion compared with their peers.
Despite these benefits, productivity improvements are still uneven across India's manufacturing sector.
Transformation required
Major gap between smaller and larger factories
The KPMG report says that over 70% of large manufacturing companies will need transformative measures to achieve the productivity growth rate needed for India's manufacturing ambition.
It also highlights a major gap between smaller and larger factories, with small and unorganized manufacturing facilities producing less than 20% of the output per worker compared to large firms.
Productivity differences among companies within this sector can range from 300% to even 1,000%.
Points
Rethinking how work is organized, workforce is deployed
KPMG has identified six broad levers for manufacturing growth: productivity, workforce shifts, global integration, investment in capacity, innovation and technology, and consumption-led growth.
However, it says that productivity stands out because its gains can be sustained over time.
The report also stresses that improving productivity will require companies to rethink how work is organized and how their workforce is deployed with the help of digital and AI tools.