Growth in manufacturing should take India past the $5 trillion mark

13 August 2019 Consultancy.in

McKinsey & Company’s Managing Partner in India Gautam Kumra has reiterated the need for India to bolster its manufacturing capabilities. India is looking to double the value of its economy, and in discussion with the Economic Times, Kumra positioned an increase in productivity as crucial to achieve this goal. 

India’s economy is currently worth $2.7 trillion, but experts have long suggested that the country is well on its way to surpassing the $5 trillion mark. By 2050, Big Four accounting and advisory firm PwC predicts that India will become the second largest economy in the world.

However, the speed of growth that is required to reach the $5 trillion threshold requires certain key structural changes within India’s economy. Analysing the Indian economy, McKinsey & Company has placed the required compound annual growth rate (CAGR) to achieve the $5 trillion goal at more than 8%.

According to Kumra, an increase in productivity is crucial to this end. “If you look at the employee participation and improved rate, that would be about 2%. So, 6% has to come from productivity growth," said Kumra, breaking down the focus areas for economic growth in the near future.

Gautam Kumra, Senior Partner at McKinsey & Company

Productivity extends across the primary, secondary and tertiary sectors, although productivity growth can be accelerated by targeting the secondary economy. “a 6% productivity growth rate cannot be achieved unless the mix of GDP shift substantially in favour of manufacturing,” said Kumra.

This is not the first time India’s manufacturing deficiencies have been called out by market watchers. Management consultancy A.T. Kearney’s Global Managing Partner Johan Aurik has previously indicated that India is not "production ready," and that significant changes need to be made to bring it up to international competitiveness.

This is not for want of trying, given that the current administration’s ‘Make in India’ campaign has been in motion for more than five years. However, the gestation period for the scheme is slow when compared to the substantial improvements required. Kumra suggested that manufacturing needs to contribute at least 5% more to the GDP if India wants to reach $5 trillion. However, there are a number of issues to consider when targeting sector-specific growth.

“If it is a game about productivity then you have to fix the composition of each and every sector. Fundamentally, where it goes down is you have to go and look within each sector; construction, oil and gas, electronics manufacturing and we have to challenge what is the right comparative industry structure to create.”


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