Three policy interventions could add billions of dollars to GDP: McKinsey

They could help key manufacturing value chains more than double their GDP contribution to $500 billion over the next seven years, says Oct 30 note

Three policy interventions could potentially add hundreds of billions of dollars to the manufacturing segment’s contribution to the economy, according to consultants McKinsey & Company.

They could help key manufacturing value chains more than double their gross domestic product (GDP) contribution to $500 billion over the next seven years, according to an October 30 note authored by senior partner Rajat Dhawan and partner Suvojoy Sengupta. Raising productivity, securing know-how and technology, and better access to capital could accelerate the growth of key parts of India’s manufacturing, it said.

This would involve manufacturers capitalising on growth in domestic sales and exports, and on opportunities to meet demand for goods that are currently imported, as well as contract manufacturing for global markets. The segments in focus include chemicals, agriculture and food, electronics and semiconductors, and metals and materials (see chart 1).

This comes even as manufacturers are earnings low returns on the money they invest. Investments have fallen recent years (see chart 2).

Raising productivity can be achieved through increased automation, and better infrastructure. Manufacturers can gain a technology edge through acquisitions. Financial reforms that would push raising capital through patient foreign investors such as pension funds would help with access to capital, said the note.

“This approach would not entail the sort of far-reaching bureaucratic reforms that can lower input costs and improve the ease of doing business across many sectors. (Such reforms could be valuable, but their slow pace to date has resulted in feeble gains for manufacturers.).... the new reforms would specifically catalyze the growth of India’s manufacturing value chains....while powering  extensive job creation at a time when the Covid-19 crisis has pushed millions below the poverty line,” it said.