Manufacturing to contribute 25% of GDP only by 2025: KPMG
"The proposed first national manufacturing policy will help create an eco-system that will enhance the country's GDP and global competitiveness of the manufacturing sector.
This envisages increase in the contribution of the sector to GDP from the current 16 percent to 25 percent by 2025," KPMG India Head of Advisory, Richard Rekhy, said in the report titled 'Global Manufacturing Outlook 2011' released here.
The government is working on a NMP that aims to attract overseas investments and increase the share of the sector in the economy as currently GDP is largely skewed towards services with over 65 percent contribution.
The Centre aims at raising the share of manufacturing sector from the present 16 to 25 percent of GDP by 2020 with the NMP. Manufacturing contributes over 80 percent to overall industrial production.
Economists and experts have been pointing out that the services sector is not creating as many jobs as the nation, which has over 65 percent of its population under the age bracket of 30, wants.
They also feel if the economy is to sustain higher growth rates in the long-term, the best way to achieve that is creating jobs in millions per annum by widening the manufacturing sector.
Though the NMP was to be cleared by the Cabinet last week, last minute differences on issues regarding relaxing environmental and labour laws held back notification of the much-awaited policy.
The Environment Ministry is reportedly opposed to the provisions of a special purpose vehicle in the new policy, which according to it, would create conflicts of interest.
The KPMG report noted that India has moved up the value chain of manufacturing as more global companies are making it a part of their global supply chain.
"Companies are looking to build their R&D centres as India is increasingly getting recognised for high value goods requiring a fair amount of engineering precision and quality."
"The manufacturing sector is diversifying and clearly positioned for growth, due to conditions on the ground which the global players are using to their advantage with healthy respect for unpredictability and volatility around the world," Rekhy said.
"Companies are still closely watching cash expenditures, and while there is more emphasis now on growth than two years ago, many are developing approaches to more tightly scrutinise new product development expenditures and expected return on investment," said KPMG USA Principal Advisory for Business Effectiveness Doug Gates in the report.
Large global manufacturers are setting their sights on topline growth over the next two years, focusing on new products, strategic acquisitions and alliances, innovation and increasing production capacity in high-growth markets.
Bolstering the growth agenda are stronger investments in supply chain risk management to mitigate the impact of continued market volatility, the report said.
The KPMG annual survey of 220 manufacturing executives from global companies with at least USD 1 billion in revenue shows that businesses will focus on topline growth as a priority in the next two years, followed by R&D, customer relationships and cost containment.