Large factories drive nearly 72% of manufacturing GVA
Factories employing more than 200 workers make up just 10.4% of all operational units but contribute nearly 72% of the country’s manufacturing gross value added (GVA), amounting to Rs 15.9 lakh crore. They also account for 63% of industrial employment.
By comparison, factories employing up to 50 workers constitute over 71% of operational units but contribute only 10% to manufacturing GVA. Micro units with up to 10 workers account for 36.3% of factories but generate just 2% of the output, according to a recent study published in an NSO journal based on data from the Annual Survey of Industries (ASI) 2022-23.
India’s manufacturing GVA stood at around Rs 22 lakh crore in 2022-23. Policy experts have called for measures to help smaller units expand, including targeted technology upgrades, cluster-based supply chain linkages with larger companies and easier access to credit.
Smaller factories carry a higher debt burden
The productivity gap is also reflected in the debt burden on smaller establishments. Factories employing up to 10 workers have a formal loan-to-GVA ratio of 85%, compared with around 39% for those with more than 200 workers. This suggests that although smaller units use substantial formal credit relative to their output, limited scale and low capacity utilisation restrict their ability to convert that capital into higher production.
Large units lead in R&D and worker training
The divide is also evident in investment in research and development (R&D) and worker training, both of which can improve productivity. Only 2.7% of operational factories have an active R&D unit, while 6.7% provide formal skill training to employees.
Larger establishments are significantly ahead on both measures. Nearly 12% of factories employing more than 200 workers have R&D facilities and 20% provide formal training. Among micro units, the corresponding shares are just 0.6% and 2.5%, respectively.
Women account for just 11% of manufacturing workforce
The study also highlights the low representation of women in manufacturing. Female workers account for just 11% of the sector’s total workforce. Their share ranges from 8.5% in factories employing up to 10 workers to 11.5% in establishments with more than 200 workers.
Mfg PMI eases
India’s manufacturing activity moderated slightly in October, with the HSBC India Manufacturing Purchasing Managers’ Index (PMI) easing to 54.7 from 55.1 in September, even as export order growth reached a six-month high and price pressures weakened, according to the data released by S&P Global.
Despite the decline, the index remained “comfortably above the neutral mark of 50.0”, indicating continued expansion in the manufacturing sector. It also stayed above its long-term average.
The report said growth in new business remained strong, with new export orders increasing at the fastest pace in six months. Manufacturers reported higher demand from markets including Bangladesh, Canada, Indonesia, Nepal, Oman, Saudi Arabia, Sri Lanka, the United Kingdom, the United States and the UAE.
Stronger overseas demand supported a sharp rise in factory output, although production growth softened from September. The report attributed the increase in new business to “favourable demand trends, new client wins and successful marketing campaigns”.