India's manufacturing needs 13.1% CAGR to hit $7.5T by 2047: KPMG

India's manufacturing sector must achieve a 13.1% CAGR to hit USD 7.5 trillion by 2047, a KPMG report finds. This is vital for India's USD 30 trillion economy goal, with workforce productivity being the most critical lever for growth.

India’s manufacturing sector needs to grow at a 13.1 per cent compound annual growth rate (CAGR) to reach USD 7.5 trillion by 2047, according to a KPMG report. The target is important for India to achieve its broader goal of becoming a USD 30 trillion economy by 2047.

According to the report, if the manufacturing sector continues to grow at the current rate of 7.9 per cent CAGR, it would reach only around USD 2.7 trillion by 2047, leaving a gap of about USD 4.8 trillion.

The Productivity Imperative

The report said manufacturing needs to expand nearly 15 times, from around USD 501 billion in 2025 to USD 7.5 trillion by 2047. This would require real growth of about 8.4 per cent and nominal annual growth of around 13 per cent. "The central thesis of this paper is clear: Workforce productivity is India's most underleveraged growth lever," the report said.

An analysis of more than 130 large domestic manufacturing companies found significant differences in performance. Companies with higher productivity recorded more than 50 per cent higher profitability growth and nearly double the market capitalisation growth compared with their industry peers.

The report also found that more than 70 per cent of enterprises need major changes in their operations to meet productivity targets. It pointed to several hidden factors that reduce productivity, including too many management layers, weak supervision, unclear roles, dependence on informal knowledge, gaps in contract workforce skills and excessive reporting. "Many factories suffer from a 'productivity illusion': high activity is mistaken for high performance," the report said.

A Three-Pillar Solution and Other Drivers

To address these challenges, KPMG suggested a three-pillar approach -- reimagining work, redesigning organisations and remodelling the workforce. The report said the use of digital systems, artificial intelligence, performance management and organisational changes could help companies achieve productivity gains of 15-30 per cent. "The next era of manufacturing competitiveness will not be won only by adding more people or assets, but by fundamentally redesigning how work gets done," it said.

The report identified five other key growth drivers for manufacturing -- workforce shifts, greater global integration, investment in production capacity, innovation and technology, and consumption-led growth.

It noted that small and unorganised manufacturing facilities generate less than 20 per cent of the output per worker compared with large firms.

The report also stressed the need to move surplus agricultural workers into manufacturing through better skilling and training. Agriculture continues to account for around 46 per cent of total employment, making workforce transition important for India to benefit from its demographic advantage.

Permanent Gains Through Productivity

"Unlike scale or demand-led levers, productivity improvements embed permanently into the system, raising output, margins, and competitiveness year after year," the report said.

It added that a sustained 30 per cent improvement in productivity could contribute nearly 35 per cent of India’s future manufacturing output. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)