Manufacturing divide: 10% factories account for 72% output

The striking pattern is concentration. Factories employing more than 200 workers represent only 10.4% of operating units, yet they generate nearly 72% of manufacturing gross value added. This matters because the number of factories does not reflect where most economic output is created.

Large factories can spread fixed costs across more production. They also have better access to technology, research, worker training, and organised supply chains. The study found that nearly 12% of large units have R&D facilities and 20% provide formal training. Among micro units, the figures are only 0.6% and 2.5%.

Small factories dominate in number but not output. Units employing up to 50 workers make up more than 71% of factories and contribute only 10% of GVA. The gap suggests that helping viable small firms adopt technology, train workers, and connect with larger companies could raise their productivity and overall contribution.

Gross value added, or GVA, is the value of goods and services produced by a factory or sector minus the value of intermediate inputs used to make them. In standard national accounting, it captures the new economic value created during production. That makes it useful for comparing sectors and factory groups without counting the same inputs repeatedly.

For example, if a factory sells output worth Rs 100 but uses Rs 60 worth of materials and services, its GVA is Rs 40. That value supports payments to workers, businesses, lenders, and government, although the article does not break the figure into those parts. GVA therefore focuses on the contribution created within the production process.

The article estimates India’s manufacturing GVA at around Rs 22 lakh crore in 2022-23. Large factories generated nearly 72% of it, while factories with up to 50 workers contributed 10%. These figures reveal the sector’s sharp productivity divide.

India’s manufacturing sector was estimated to generate around Rs 22 lakh crore in gross value added during 2022-23. GVA measures the new value created after production is adjusted for the inputs used. The figure gives a broad picture of manufacturing’s economic contribution, not merely the total value of factory sales.

The division is highly uneven. Factories employing more than 200 workers made up 10.4% of operating units but generated nearly 72% of GVA, equal to Rs 15.9 lakh crore. Factories with up to 50 workers accounted for more than 71% of units but contributed 10% of GVA, or roughly Rs 2.2 lakh crore when applied to the sector total.

These groups do not include every middle-sized category in the two headline shares, so they should not be treated as a complete split. Still, the contrast is clear: a small group of large factories drives most output, while many small units produce relatively little.

Larger factories tend to produce more per unit because they can use machinery, managers, and infrastructure across a bigger volume of output. Their size can also support specialised jobs and more reliable production systems. These advantages reduce the average cost of making each item and can raise productivity.

The article points to important enablers. Nearly 12% of large units maintain R&D facilities, compared with only 0.6% of micro units employing up to 10 workers. Formal training reaches 20% of large units, but just 2.5% of micro units. These capabilities can improve processes, product quality, and worker effectiveness.

Small factories often operate with limited scale and low capacity utilisation, making it harder to finance such improvements. The result is a sharp output gap: units with up to 10 workers represent 36.3% of factories but generate only 2% of output. Better technology, skills, and business linkages could narrow it.

The loan-to-GVA ratio compares formal borrowing with the value a factory creates. A higher ratio means debt is large relative to output. For the smallest factories, the ratio is 85%, compared with about 39% for factories employing more than 200 workers. This points to heavier debt exposure relative to productive capacity.

The contrast does not mean borrowing is automatically harmful. Credit can fund machinery, materials, or expansion. The concern is that small factories may not use that capital efficiently. The study links their high ratio with low capacity utilisation and limited scale, which can prevent loans from producing proportionate output.

This creates a difficult cycle. Small units rely substantially on formal credit, yet generate little GVA for their size. Improving technology, training, market access, and links with larger firms could help them turn borrowed capital into more production. Easier credit alone may not close the productivity gap.

The article identifies several ways to raise small-factory productivity. Targeted technology upgrades can improve production methods and equipment. Formal worker training can build skills. Cluster-based supply-chain links with larger firms can provide steadier business relationships and connect smaller units to wider production networks. Easier credit can help finance these changes.

The need is visible in the data. Only 0.6% of micro units maintain an active R&D unit, and just 2.5% provide formal training. Among large units, the shares are nearly 12% and 20%. Small factories also carry a formal loan-to-GVA ratio of 85%, so financing should support productive investment rather than debt alone.

A combined approach is therefore more promising than a single intervention. Better technology and training can raise capacity utilisation, while supply-chain links can create demand for expanded output. Credit can then support growth. If these measures work together, more small units may scale up and contribute substantially more to manufacturing GVA.

Economies of scale occur when the average cost of production falls as a factory expands. Larger operations can spread fixed costs, such as machinery, buildings, research, and management, across more products. They may also organise work into specialised tasks and negotiate more dependable supply arrangements. These are standard economic mechanisms; the article does not use this term directly.

For example, a large factory can operate an R&D facility or training programme while producing enough goods to justify that expense. The article reports R&D facilities in nearly 12% of large units, versus 0.6% of micro units. Formal training appears in 20% of large units, compared with 2.5% of micro units. Scale makes these capabilities easier to maintain.

India’s figures reflect the outcome. Large factories are 10.4% of operating units but generate nearly 72% of manufacturing GVA. Smaller units may gain similar advantages by sharing services, joining clusters, adopting technology, and building supply links with larger firms.