India Can Add 10 Percent To GDP By Fixing Logistics And MSMEs
India’s manufacturing growth could get a sharp boost by reducing logistics costs and bridging the productivity gap in micro, small, and medium enterprises (MSMEs). A 10% drop in logistics expenses could raise exports by 5–8%, while narrowing MSME productivity differences with larger firms could contribute over 10% to the GDP, experts and industry analyses suggest.
India’s heavy dependence on road transport is a major factor behind high logistics costs. Trucks currently move 60% of the country’s freight, compared to 37% in the US and 22% in China. Railways carry just 29% of Indian cargo, while inland waterways serve only 2%, against 31% in China. Shifting more freight to rail and waterways could significantly reduce per-tonne transport costs and improve overall industrial competitiveness.
Transport costs in India are among the highest globally, with trucking at $0.09 per tonne-km compared to $0.04 by rail and $0.03 via coastal shipping. Countries like China and the US achieve lower logistics costs by using diversified transport networks. Experts note that despite recent improvements in freight corridors and inland ports, India must accelerate multimodal transport adoption to meet manufacturing and export growth targets sustainably.
MSMEs form the backbone of India’s manufacturing sector, employing 80% of its industrial workforce and contributing 40% of the output. Yet, productivity remains alarmingly low—just 14% of that in large plants. Comparable firms in other emerging economies average 29%, while advanced economies touch 53%. Closing this productivity gap through targeted reforms, better tools, and access to credit could add up to 10.5% to India’s GDP.
A major hurdle in boosting MSME productivity is the skills mismatch in the labour force. Though the number of industrial training graduates is rising, only 40% from Industrial Training Institutes and 29% from polytechnic colleges are considered employable. Experts argue that upskilling, digitisation, and policy support are essential to make MSMEs globally competitive and transform India from an assembly hub into a high-value manufacturing powerhouse.
To truly position itself as a global manufacturing leader, India must urgently reduce logistics costs and invest in MSME capacity-building. Realigning freight from roads to railways and waterways, coupled with upskilling and modernising small manufacturers, could yield exponential growth. With coordinated reforms, India’s manufacturing sector could unlock new levels of output, competitiveness, and resilience in a shifting global economy.
