Factories boost capital efficiency, increase automation

Factories in India are becoming increasingly efficient, with the net value added per factory increasing by 24 per cent in the five years from 2009-10 till 2013-14, the latest period for which the government released data on Friday.

The net value added per factory in operation increased from Rs.3.88 crore in 2009-10 to Rs.4.82 crore in 2013-14, according to the Annual Survey of Industries 2013-14.

Capital output ratio

Similarly, the net value added per person engaged also increased from Rs. 5.02 lakh to Rs. 6.6 lakh over the same period. “There is some evidence from the capital formation and savings data that up to 2014-15, the capital output ratio has been falling,” D.K. Srivastava, Chief Policy Advisor at EY told The Hindu.

“Output per unit of capital employed has been increasing. Also, companies are become more capital intensive, which may imply that labour-saving technology is being used.”

The survey data shows the value of fixed capital per factor in operation increased from Rs. 1,212 lakh in 2012-13 to Rs. 1,278 lakh in 2013-14, which is much higher than the Rs. 886 lakh it was at in 2009-10. Coupled with this, the number of people engaged per factory has come down, albeit marginally, from 77 in 2009-10 to 72 in 2012-13 and 73 in 2013-14.

“This is symptomatic of jobless growth, which is when factories are trying to automate and increase technology usage to improve productivity while keeping employment constant,” Rajiv Kumar, Senior Fellow at the Centre for Policy Research, said. “This could also reconcile the different signals from the gross value added data and the industrial output data.” This push for automation and decreased labour costs has resulted in the overall output per person engaged also seeing a steady increase, growing from Rs. 31.6 lakh in 2009-10 to Rs. 48.4 lakh in 2012-13.

Capacity utilisation

The overall view is that, with the global economy still being subdued, companies are looking to use their existing capacity more efficiently rather than investing in capacity expansion.

And, with capacity utilisation still relatively low, this suggests that there is still more room to improve efficiencies.

“Capacity utilisation is low, one of the reasons people aren’t coming forward with new investment,” K Ravichandran, Senior Vice President and Co-Head, Corporate Sector Rating at ICRA, said.

“They are instead trying to cut costs on the labour front and trying to automate. Even the disaggregated data shows that there is a lot of automation being done, resulting in better efficiencies.” “This indicates that while we have under-utilised capacity, whenever demand increases, output will be increased without additional investment,” Mr. Srivastava said.

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Printable version | Aug 9, 2020 6:15:43 AM |

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