Manufacturing Output, Profits To Improve With GST, But Wage Growth May Remain Subdued
The greater integration on new technologies and the recently announced goods and services tax reforms will help in sustaining and lifting the output/capital intensity and also the productivity growth of the manufacturing sector in the medium term: Reports
CHENNAI: Policy intervention, cleaner balance sheets and banking system has helped the organised manufacturing sector improve output intensity as well as profitability since FY20 and the GST rate revision is expected to further support manufacturing output. However, this improvement does not reflect in wage growth. Automation, artificial intelligence and lean manufacturing will further reduce the number of workers in manufacturing over the next few years.
“Indian organised manufacturing has faced recurring shocks from FY20, but, the policy intervention of the government, cleaner balance sheets of the corporates and the banking system, in addition to the greater, gradual and efficient traction of automation and new technologies by the industry has resulted in a jump in the output intensity or output-capital ratio. The output intensity remained at 3.0x during FY20-FY24 which was near to the levels last witnessed during FY05-FY09 (3.2x)”, says Paras Jasrai, Associate Director & Economist, Ind-Ra.
The greater integration on new technologies and the recently announced goods and services tax reforms will help in sustaining and lifting the output/capital intensity and also the productivity growth of the manufacturing sector in the medium term.
The profits of organised manufacturers also increased since FY20. It grew by 30.8 per cent in FY21 and 54.8 per cent in FY22. Upon this high base, FY23 saw growth of 2.2 per cent and 9.9 per cent in FY24. However, during these years, nominal wage growth was 0.8 per cent in FY21, 10 per cent in FY22, and 5.5 per cent in FY23 and FY24.
The average annual wage growth (nominal) stood at 5.2 per cent during FY20-FY24, which was the lowest quinquennial average growth since FY00-FY04 at 5.1 per cent. The wage growth, which kept rising since FY01, although not in a linear fashion, peaked in FY13 and declined till FY21. It improved somewhat since then but remained around 5 per cent. In real terms (adjusted for inflation), the annual average wage growth has declined during FY20-FY24 to 0.5 per cent.
India Ratings finds that since concepts such as automation, artificial intelligence and lean manufacturing are driving the manufacturing landscape across the globe, the number of workers or employees in manufacturing is likely to be smaller over the next few years.
