Aug 13, 2024
GLOBAL VALUE CHAINS and INDIA
1. Definition of Global Value Chains:
• Global Value Chains (GVCs) refer to the international network of production and distribution processes where different stages of production are located in different countries. This setup allows companies to optimize their production processes by sourcing materials, manufacturing components, and assembling final products in various locations globally.
2. Importance of Global Value Chains:
• Cost Efficiency: GVCs enable companies to lower production costs by sourcing inputs and labor from the most cost-effective locations.
• Market Access: Participation in GVCs allows countries and companies to tap into larger global markets, expanding their customer base and export opportunities.
• Specialisation: Countries and firms can specialise in specific stages of production where they have a comparative advantage, increasing overall productivity and efficiency.
• Technology Transfer: GVCs facilitate the flow of technology and knowledge across borders, leading to innovation and improved production techniques.
• Economic Growth: GVCs contribute to economic growth by creating jobs, enhancing export capabilities, and integrating local firms into the global economy.
INDIA’S POSITION IN GLOBAL VALUE CHAINS AND POLICY IMPACTS
1. India’s Place in Global Value Chains:
• Comparative Advantage: India excels in labor-intensive sectors due to its large and skilled workforce, making it a key player in backward-linked GVCs where imported components are used for exports.
• Key Sectors: India is emerging as a hub for electronics, textiles, automotive components, and has recently expanded into higher value-added sectors like mobile handset manufacturing.
2. Policies and Their Gains:
• Production Linked Incentive (PLI) Scheme:
• Objective: Encourages domestic manufacturing by offering incentives based on incremental sales.
• Impact: Attracts significant investments in sectors like electronics, pharmaceuticals, and automotive, boosting exports and integrating Indian companies into GVCs.
• Foreign Direct Investment (FDI) Liberalization:
• Objective: Liberalizes FDI policies, allowing 100% FDI in many sectors via the automatic route.
• Impact: Attracts multinational companies, increasing foreign investment and technology transfer, fostering industrial growth and job creation.
• Trade Agreements and Tariff Reforms:
• Objective: Signs FTAs with countries like the UAE and Australia, and negotiates with others like the EU and UK; reforms tariffs to reduce import duties on essential components.
• Impact: Reduces trade barriers, enhances market access, and makes Indian products more competitive globally, further integrating India into GVCs.
• Labor and Land Market Reforms:
• Objective: Simplifies labor laws and streamlines land acquisition processes.
• Impact: Reduces entry and exit barriers for businesses, supports labor-intensive manufacturing, and attracts investment by creating a more flexible business environment.
3. Gains from Policy Implementation:
• Economic Growth: Policies enhance India’s competitiveness in the global market, contributing to economic growth.
• Job Creation: Increased investment and manufacturing expansion generate employment across various sectors.
• Technological Advancement: Integration into GVCs and foreign investment bring new technologies and best practices, fostering innovation and skill development.
India’s strategic policies aim to solidify its role in global value chains, driving economic growth and establishing the country as a major player in the global manufacturing sector. Continued reforms and targeted policies are essential for achieving this vision.
SRIRAM’s
