India’s Manufacturing: Productivity Over Capacity for Viksit Bharat

India’s manufacturing sector must prioritize enhancing Total Factor Productivity (TFP) over mere capacity creation to achieve the ambitious ‘Viksit Bharat’ mission by 2047. This strategic shift is crucial for future industrial expansion.

For the past decade, the sector’s focus has primarily been on increasing factory size, investments, and overall output. However, sustainable growth now demands a pivot towards productivity, which measures the value derived from every unit of capital, labor, energy, materials, and services.

Understanding Total Factor Productivity

Total Factor Productivity (TFP) serves as a critical measure of efficiency, indicating how effectively inputs are converted into output. Historically, TFP in manufacturing has shown fluctuating growth, marked by periods of decline and recovery, but has yet to establish a sustained upward trend.

Embedding productivity as a cornerstone for manufacturing growth requires a multi-pronged approach involving deliberate cultivation through policy, industry action, and institutional support.

Seven Key Priorities for Manufacturing Growth

To foster this essential productivity-driven growth, seven key priorities have been identified:

• Closing the Innovation Gap: India’s research and development (R&D) spending is significantly lower than leading economies.
• Integrating with Global Value Chains (GVCs): Increased participation in GVCs is vital for boosting per-capita income.
• Addressing the ‘Missing Middle’: Enabling micro-enterprises to scale into globally competitive medium-sized firms.
• Investing in Human Capital: Focusing on high-quality vocational and technical education.
• Aligning Physical and Digital Infrastructure: Building on initiatives like PM Gati Shakti.
• Maintaining Reform Momentum: Including GST rationalization and decriminalization of procedural provisions.
• Benchmarking Performance: Establishing a national platform for comparison against global standards.

Closing the innovation gap necessitates a substantial increase in R&D investment. A target of 1.5% of GDP by 2030 is suggested, with half of this contribution expected from private firms.

Global Value Chain integration is not just about linkages but also about achieving manufacturing’s target of contributing 25% of GDP by 2035 and creating 140 million jobs. Production Linked Incentive schemes have already strengthened India’s backward linkages in this regard.

The ‘missing middle’ refers to the crucial need for micro-enterprises to evolve into competitive medium-sized firms, recognized as engines of productivity and employment. Developing human capital involves industry-led apprenticeships to enhance skill development.

Aligning infrastructure builds upon existing digital transaction frameworks and **PM Gati Shakti**. This also requires addressing industrial power tariffs and ensuring the secure supply of critical mineral inputs. Furthermore, ongoing reform momentum, including **GST rationalization**, will reduce friction and secure productivity gains.

Finally, a national platform for benchmarking performance would enable **MSMEs** to compare their labor and energy productivity, machine utilization, and quality standards against global benchmarks. This continuous comparison is vital for improvement.

Ultimately, achieving India’s ambitious economic targets by 2047 demands more than just increased inputs; it requires compounded growth driven by continuous productivity improvement from both government and industry stakeholders.