Future Manufacturing Powered by 30% Productivity Boost in India
India’s manufacturing sector could boost its future output by nearly 35% through a 30% increase in workforce productivity, according to a KPMG analysis of over 130 large manufacturing companies over the past decade. The study found that firms that improved productivity outpaced their peers in profit and market value growth. Companies with higher productivity saw net profits grow by approximately 10-11% annually, compared to about 7% for those with average productivity levels.
The disparity in market value growth was even more pronounced. Productivity-leading companies experienced a compound annual growth rate (CAGR) of around 19% in market capitalization, while average-productivity firms recorded nearly 10%. Overall, companies that excelled in productivity achieved more than 50% higher profitability growth and twice the market-cap expansion compared to their counterparts.
Small Factories Lag Larger Firms
The productivity gains are not uniformly distributed across the manufacturing sector. The report indicates that over 70% of large manufacturing companies would require transformative measures to reach the productivity growth necessary for India’s manufacturing ambitions. Additionally, small and unorganized manufacturing facilities produce less than 20% of the output per worker compared to larger firms. Within the sector, productivity can vary significantly, with differences ranging from 300% to 1,000% among companies.
Six Ways to Drive Manufacturing Growth
KPMG identified six key levers for driving manufacturing growth: productivity, workforce shifts, global integration, investment in capacity, innovation and technology, and consumption-led growth. Among these, productivity is highlighted as the most impactful, offering long-term benefits. The report states that productivity gains become embedded in the system, enhancing output, margins, and competitiveness over time.
To improve productivity, companies must reconsider work organization, organizational structure, and workforce deployment. The report emphasizes the need for digital and AI tools, performance management, and cultural changes in the workplace to support these enhancements.
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