The report said productivity improvements have a stronger and more lasting impact than growth driven only by scale or demand, as they can raise output, margins and competitiveness year after year.
“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.”
KPMG’s analysis of more than 130 large Indian manufacturing companies over 10 years found a strong link between workforce productivity and business performance. Companies with higher-than-average productivity growth recorded net profit growth of around 10-11 per cent annually, compared with about 7 per cent for average-productivity companies.
Their market capitalisation growth was also higher, with productivity-leading companies recording around 19 per cent CAGR, compared with nearly 10 per cent for average-productivity organisations. The report said these companies achieved more than 50 per cent higher profitability growth and twice the market-cap expansion compared with peers.
However, productivity improvements remain uneven across India’s manufacturing sector. The report said 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.
It also highlighted a significant 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, while productivity differences among companies within the sector can range between 300 per cent and 1,000 per cent.KPMG identified six broad levers for manufacturing growth — productivity, workforce shifts, global integration, investment in capacity, innovation and technology, and consumption-led growth. But it said productivity stands out because its gains can be sustained over time.
“Unlike scale or demand-led levers, productivity improvements embed permanently into the system,” the report said.
The report said improving productivity will require companies to rethink how work is organised, how organisations are structured and how their workforce is deployed, supported by digital and AI tools, performance management and changes in workplace culture.