A brief introduction to International trade and GVCs. Followed by a critical analysis of India's participation in global trade and GVCs and the steps that can be taken to improve it.

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Topic Discussed
A proposed solution which can convey how GVCs have changed and
are changing the international trade and what policies your country
governments support to broaden participation in GVCs.
Part I
“Every man lives by exchanging” – Adam Smith
Brief historical reference to International trade and role of GVCs in its
development.
The barter of goods or services among different peoples is an age-old practice,
probably as old as human history. International trade, however, refers specifically
to an exchange between members of different nations, and accounts and
explanations of such trade can be found in.
(I) The Silk route
(II) Experts from the trade between the Roman Empire and India.
(III) Rise of the modern nation-state at the close of the European Middle Ages.
The primary catalysts to promote the international trade are the forces of the
demand and supply. When demand for a product is higher than the supply that can
be filled by that country’s own available resources, that’s when firms/nations
search beyond their borders for better prospects and abundant availability of
resources to fulfill the demand and supply gap.
The flow of international trade picked pace post the first Industrial revolution due
to increase in production capabilities, rise in population and better shipping
capabilities. However, the real boost in International trade was achieved post
World War II, the annual global exports grew 40 times in 2014 compared to 1950

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leveleven though global exports fell post 2008 financial crises.
This was possible due to better manufacturing processes and techniques, and
global collaboration among nations. This lead to the rise of the concept called
Global Value Chains (GVCs).
As per WDR 2020, GVCs is “A global value chain breaks up the production process
across countries. Firms specialize in a specific task and do not produce the whole
product.”
As a result, where one item which was sourced, produced and consumed entirely
in only one nation. Now, the raw material(s) for the same product is/are sourced
from one nation, designed in other nation, produced in another and finally
utilized/consumed in multiple nations, where partner nations can be neighbors or
nations that are continents apart.
Following is an attempt to explain GVCs using Apple IPhones.

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Source: Dedrick (2010) and Dedrick (2018)
By efficiently utilizing the benefits of GVCs, Apple Inc. has been able get, literally,
“The best of all the worlds”. It has been able to manufacture its products using
components from the best manufacturers, assemble products in labor-intensive
regions at competitive prices and market for consumers all around the world, all of
that at very competitive production costs resulting in high profit margins. As for
partner countries, they all benefited long term by advantages like job creation,
better standard of livings for their citizens and inflow of capital in the form of FDIs.
This is one of the most successful example of the long-term benefits to nations and
firms owing to effective and efficient participation in Global Value Chains.
Designed and Prototyped
in U.S.A.
Cuircuits, camera modules
and processors from Taiwan
and South Korea
Assembled in China
Marketed and sold All around
the world
3.0%
59.5%
19.40%
12.5%
2.6%
3.0%
Distribution of Value Added in Apple
iPod - 2010
China
U.S.A.
Unidentified
South Korea
Japan
Taiwan
28.9%
28.5%
20.1%
9.2%
6.9%
3.6%2.8%
Distribution of value added in iPhone 7
- 2018
U.S.A
Japan
Taiwan
Unidentified
South Korea
China
Europe
Global Value Chain of
Apple IPhones

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Part II
How Global Value Chains can transform India’s stand in global exports
and What Indian Government can to do reap the benefits of GVCs?
Sub part - A
Introduction to India’s historic trade position and some crucial reforms, in
recent times, with respect to international trade.
India, since ancient times has been a trade friendly nation, which has always
believed in open trade and welcomed merchants from other nations. One of the
earliest records of international trade involving India are the records mentioning
robust trade between the Roman Empire and the India post the aborted invasion
by Alexander the Great in 4th
century BCE.
The voyage of Vasco da Gama from Lisbon, Portugal to India in 1498 in search of
Indian spices market, is revered as one on the greatest moments in human
exploration.
However, the continuous animosity and competition among hundreds of princely
states paved way for hostile forces to take advantage of political unrest and finally
came the “British Raj” and downturn of India. After Independence in 1947, the bad
past experience due to open international trade caused India to close its market for
International players for most trades and commodities. But that action had severe
repercussions as Indian government kept relying on external debt and Indian
Industry was far behind in production capabilities compared to countries like China,
which had robust participation in Global Value Chains and were efficiently utilizing
their labor-intensive market along with effective deployment of Forward
Participation strategy.
This dire condition lead to a massive event in Indian trade and business in modern
times “Liberalization, Privatization and Globalization Reforms in 1991”. Entry to
foreign MNCs was allowed and government laid out systematic plans to make

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Indian economy less dependent on State-owned public sector companies and more
on private sector companies.
Post the 1991 reforms, India’s share in merchandise (goods) exports has grown at
13.2 per cent per annum and its share in world exports has increased from 0.6 per
cent in 1991 to 1.7 per cent in 2018. However, compared to China with 12.8% share,
this progress is paltry,
Nonetheless, growth in exports provided a much-needed pathway for job creation
in India where increased exports explain the conversion of about 800,000 jobs from
informal to formal between 1999 and 2011, representing 0.8 per cent of the labor
force (ILO report 2019).
Sub – part B
“Obstacles are those frightful things you see when you take your eyes off your goal.” – Henry Ford
Identification and analysis of reasons for India’s low share in world exports and
low participation in GVCs.
India’s lackluster export performance can be linked following challenges.
• More focus on diversification of exports rather than specialization.
• Focus on capital-intensive products in the export not on Labor-intensive
products.
• Low level of participation within industries in India.
Explanation
India, post 1991 reforms, focused on core areas like steel and other heavy
engineering to improve its share in world exports. However, over time, this focus
shifted to services like Business Process Outsource and Information technology
related sector. Further, with the increase in middle income population and
discretionary income the Indian market grew and production of two-wheeler, four-
wheeler vehicles improved, prompting various MNCs like Renault, Suzuki, Toyota,

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Honda etc. apart from several Indian companies to ramp up their production
capabilities to catch up to the rising demand of automobile sales. As a result, India,
in 2018, became the 4th
largest producer automobiles and exports were around 5
million units in 2018.
Apart from these heavy industries, government is also focusing on boosting the
exports of textiles and India-centric textiles like jute manufactured products,
handicrafts and khadi cloth. Further, since last decade, Indian Pharmaceuticals
industry has also improved its share in world exports with organizations like Serum
Institute of India, in association with Oxford University, getting worldwide orders
for production of Covid-19 vaccine as soon as it finish all mandatory trials and is
declared safe for human use. Additionally, large scale initiatives under “Make In
India” initiative were taken under the new government and smartphone
manufacturing facilities improved rapidly and now India is the 2nd
largest
manufacturer of smartphones in the world, second only to China, producing more
than 1 billion handsets each year.
All these massive developments but still India’s share in world exports lags so much
behind when compared to countries like China. Reason being, intense focus on
diversification and not on specialization. India’s position is that of “Jack of all
trades, Master of none.”
Further, India focused more on capital-intensive products which improved India’s
GDP but also widened the gap between rich and poor. Where on one hand
population is increasing at a rapid pace but not enough jobs created to support the
population. As a result, even after 30 years of 1991 reforms, more than 10% of
employed population is still below poverty line in India.
Sub – part C
”If everyone is moving forward together, then success takes care of itself” – Henry Ford
Suggested reforms in policies that can be considered to improve
India’s participation in world exports and GVCs

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The conceptual Framework for gains from “Assembling in India” as a part of
“Make in India”
1) Higher level of participation in GVCs
A higher level of participation in GVCs implies that, for any given country, the share
of foreign value added in gross exports is higher than when most inputs are sourced
locally. However, owing to scale and productivity effects of selling in the world
markets, participation in GVCs can lead to higher absolute levels of domestic value
added and domestic job creation. The scale effect creates millions of jobs and is
therefore particularly suited for implementation in a labor-intensive economy such
as India.
2) Focus on specialization in sectors rather that diversification
It is clear from the example of China and Vietnam that nations and its firms benefit
more by focusing on specific sectors in early stages and later as those industries
grew and nourished they focused on other sectors. Eg. In 1980s, China focused
more on production and assembly of electronic products. As years went by and it
became a specialized center in global Electronics Market, it began to focus on other
sectors like automobiles and infrastructure.
India needs to focus on sectors where it can make the best use of its Labor-intensive
market and efficient use of the commodities that it can procure easily i.e.
commodities available domestically.
Greater Use of
Imported Inputs
Scale and Productivity
Effect for Producing for
the World
Greater
Participation
in Assembly
Share of
Foreign
Value Added
in Gross
Exports
increases
$ value of
gross exports
rises
significantly
$ value of
Domestic
Value Added
increases
significantly
Number of
Jobs
Increases
significantly

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Textile is one such sector where India can benefit from its labor-intensive market
and this is also the sector where the automation has not progressed much
compared to other sectors like manufacturing automotive, chemicals etc. As a plus,
many textile commodities like cotton, jute etc are grown in India locally and also
from neighboring countries like Pakistan etc. whereas chemical can be procured
from China.
Other sectors which India needs to focus more is education, where skilled human
capital plays a very important role and India can play a very important role thanks
to the current digitalization boom during and post Covid-19.
Following these suggested reforms, India is expected to become an active
participant of GVCs and reap the benefits that accrue from this effort in the form
of massive growth in job creation, development of Indian industry, more FDI
inflows increased share in world exports and better standard of living for Indians.
Sources, References:
https://www.adb.org/countries/india/poverty
https://www.britannica.com/topic/international-trade
https://ourworldindata.org/trade-and-globalization
http://www.iariw.org/India/veeramani.pdf
Veeramani, Aerath and Gupta (2018) based on UN-Comtrade (WITS) database (A)
Veermani and Dhir (2016)
Thank you for reading!
Have a very nice day!