India’s manufacturing sector could get nearly 35 per cent of its future output simply by getting its workforce 30 per cent more productive.The finding comes from KPMG’s analysis of more than 130 large Indian manufacturing companies over 10 years. It found that companies which improved productivity faster than their peers also saw stronger growth in profits and market value.Their net profits grew by around 10-11 per cent annually, compared with about 7 per cent for companies with average productivity.The difference was even wider in market value. Companies leading in productivity recorded around 19 per cent CAGR in market capitalisation, against nearly 10 per cent for average-productivity organisations.Overall, productivity-leading companies saw more than 50 per cent higher profitability growth and twice the market-cap expansion compared with their peers.
Small factories lag larger firms
The gains, however, are not spread evenly across the manufacturing sector.More than 70 per cent of large manufacturing companies would need transformative measures to achieve the productivity growth rate required for India’s manufacturing ambition, the report said.There is also a wide gap between smaller and larger factories. Small and unorganised manufacturing facilities produce less than 20 per cent of the output per worker compared with large firms.Even among companies within the manufacturing sector, productivity can vary sharply, with differences ranging between 300 per cent and 1,000 per cent.
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Six ways to drive manufacturing growth
KPMG identified six broad levers for manufacturing growth:
- Productivity
- Workforce shifts
- Global integration
- Investment in capacity
- Innovation and technology
- Consumption-led growth.
But productivity stands out because its benefits can continue over time.“Productivity is Indian manufacturing’s most powerful growth lever,” the report said, adding that productivity gains “embed permanently into the system, raising output, margins, and competitiveness year after year.”“Unlike scale or demand-led levers, productivity improvements embed permanently into the system,” the report said.The report said improving productivity would require companies to rethink how work is organised, how organisations are structured and how their workforce is deployed.Digital and AI tools, performance management and changes in workplace culture would also be needed to support these changes, it said.
