India’s manufacturing sector needs 13.1% growth to hit $7.5 trillion by 2047: Report

India's manufacturing sector requires a robust 13.1% compound annual growth rate (CAGR) to attain a USD 7.5 trillion economy by 2047, as outlined in a KPMG report. This ambitious target is crucial for India to achieve its broader objective of becoming a USD 30 trillion economy by the same year. However, if the sector continues its current 7.9% CAGR, it would only hit around USD 2.7 trillion by 2047, leaving a significant USD 4.8 trillion gap.

To reach this target, the manufacturing sector must expand nearly 15 times, from approximately USD 501 billion in 2025 to USD 7.5 trillion by 2047. This would necessitate real growth of about 8.4% and nominal annual growth of around 13%. The report emphasizes that workforce productivity is India's most underutilized growth lever.

An analysis of over 130 large domestic manufacturing companies revealed substantial performance disparities. Companies with higher productivity demonstrated more than 50% higher profitability growth and nearly double the market capitalization growth compared to their industry peers. Moreover, over 70% of enterprises require significant operational changes to meet these productivity targets.

The KPMG report identifies several hidden factors that hinder productivity, such as excessive management layers, weak supervision, unclear roles, reliance on informal knowledge, gaps in contract workforce skills, and excessive reporting. Many factories suffer from a "productivity illusion," where high activity is mistakenly equated with high performance.

To overcome these challenges, KPMG proposes a three-pillar strategy: reimagining work, redesigning organizations, and remodelling the workforce. The report suggests that leveraging digital systems, artificial intelligence, performance management, and organizational changes could yield productivity gains of 15-30%.

Key growth drivers for manufacturing are highlighted as workforce shifts, greater global integration, investment in production capacity, innovation and technology, and consumption-led growth. The report underscores that small and unorganized manufacturing facilities contribute less than 20% of the output per worker compared to large firms.

Furthermore, the report stresses the necessity of integrating surplus agricultural workers into manufacturing through improved skilling and training. Agriculture currently accounts for about 46% of total employment, making workforce transition essential for India to capitalize on its demographic advantage. While scale and demand-led levers are important, productivity improvements have a lasting impact on output, margins, and competitiveness, contributing to sustained growth year after year.

A sustained 30% improvement in productivity could potentially account for nearly 35% of India's future manufacturing output.