A recent report has revealed that while the real cost per worker has declined significantly over the past decade, the cost per unit of goods is still increasing, with manufacturing units producing a higher profit than the consumer sector.
A report by consultancy KPMG titled ‘A Comparative Study of Cost Per Worker and Price Index of Manufacturing’ (PDF) found that manufacturing units have been able to reduce their costs per unit by 3.3% since 2004-05, while the consumer service sector has seen an increase of nearly 7.7%.
“These cost trends have driven the cost of goods produced by manufacturing units to more than double between 2003 and 2010,” said the report, which was commissioned by the National Consumer Council.
“Manufacturing units’ profit margins are lower than consumer services because they cannot reduce costs to such an extent.
The higher cost of consumer goods has meant that they have to raise prices to cover the difference.”
In this way, consumer goods and services have become the most expensive consumer goods to produce, and they have done so at the expense of manufacturing units.
“While the cost in manufacturing units has dropped by 2.3%, the cost to the consumer has grown by 9.2%, with the rise occurring since 2003.
The report also found that the real value of goods and labour inputs in manufacturing has increased over the period, while labour costs have increased by just 2.5%.”
Manufacturing has not recovered from the economic crisis of 2004-07.
Manufacturing was responsible for about 35% of the country’s GDP in 2016-17, and accounted for almost 70% of total investment. “
The real cost to manufacturing has not been lower, and is increasing.”
Manufacturing was responsible for about 35% of the country’s GDP in 2016-17, and accounted for almost 70% of total investment.
The report found that around 80% of manufacturing employment was in manufacturing, while in the consumer and financial services sectors the figure was just under 40%.KPMG’s report also pointed out that there was a huge discrepancy between the value of manufacturing and the cost that manufacturing could afford to deliver goods to consumers.
“The true cost of manufacturing is much higher than the real costs that manufacturers are being asked to deliver to their customers.
For example, the real price of a piece of goods made by a factory in India can be up to 15 times higher than that of the cost it will make to deliver a product to consumers,” it said.”
For a manufacturing unit to achieve the required value, the total price of its goods and the costs of labour, infrastructure and technology would need to be higher than its total cost of production.”KPMI has called for a reduction in the cost for manufacturers to deliver products, including in the form of higher prices for consumer goods, to ensure the economic recovery continues.
The consultancy, which has advised several Indian companies, said in a statement that manufacturing must remain a key sector for the country to build a stable and prosperous economy, and ensure jobs are created.
“Manufacturers need to reduce the cost and create jobs for workers, who are the backbone of the economy, by investing in quality, modern machinery and equipment, improving quality control and quality assurance processes, and increasing their training to ensure they are ready to produce at the highest level,” the statement said.