India's participation in GVC and changes it must undergo to improve its share.

1. What is GVC?
Let’s understand it with an example: Individual parts manufactured by Apple comes from around the
world through various manufacturers. Camera specialists make the lens and camera equipment,
whereas screen specialists construct the display, and so on.
India’s stance on GVC’s
In the last 25 years, India's position in the global economy has risen significantly. Its percentage of
global output (in US dollars) has risen from 1.4 percent in 1990 to more than 3.2 percent in 2017.
However, its participation in global exports is still lagging behind than countries like China, Korea,
Malaysia and Thailand.
The core reason for these condition is the policy framework comprised of complex web of regulations
that protected domestic manufacturers from international competition by imposing strong import
restrictions and granting firms monopolies by restricting competition.
Furthermore, enterprises are unable to engage in exports due to their inability to produce
competitively, insufficient infrastructure, a shortage of raw material, and the inability to import
intermediate goods.

2. Advantages of participation in GVC’s
A huge number of economies, particularly in East and Southeast Asia, have reaped significant
development advantages as a result of economic openness and export-led growth. Exports have
proven to be a critical enabler of rapid growth, job creation, and poverty reduction.
It is evident that to ensure a steady growth in its economy, the country should participate in global
exports. Between 1990 and 2017, there was a 0.73 link between average annual per capita GDP
growth and average annual export growth.
Source: Times of India

3. Why India should participate in GVC
GVC exports totalled $15.7 trillion in 2018, accounting for roughly 70% of worldwide goods and
services exports of $21.7 trillion, according to ADB. Given the importance of GVC exports in overall
exports, no country can maintain rapid export growth without increasing GVC participation.
Emerging economies would have to produce a full product in the absence of GVCs in order to export
it. However, due to different structural and regulatory barriers, this is usually not possible. By
participating in specific areas of the value chain and creating niche outputs, GVCs enable rising
nations like India to increase their manufactured product exports.
GVCs aid in the development of local enterprises' capability by facilitating cross-border information,
investment, management, and other global best practices.
What India should do to improve its GVC participation?
When measured by BPR, India lags behind other economies, and when measured by FPR, it is
somewhere in the middle. Even more concerning is the fact that between 2010 and 2017, India
experienced the greatest reduction in GVC membership. In contrast, many other Asian economies,
including Vietnam, the Republic of Korea, the Philippines, and Taipei, China, have increased their
participation.

4. If India is to meet the NITI Aayog's $800 billion export goal by 2022/23, it must address this problem
and boost India's GVC participation, as GVC exports continue to account for almost 70% of total
exports. It is important to identifying the key factor that have influence GVC exports worldwide,
analysing India's performance on those factors, and proposing measures to improve.
1. India’s top destination for GVC export: Chemicals, coke and petroleum, basic and manufactured
metals, and transport equipment account for more than half of GVC exports to the United States. GVC
exports to the PRC, on the other hand, are dominated by raw resources such as basic and
manufactured metals, chemicals, mining, and agriculture. In contrast, GVC exports to Singapore are
dominated by services such as machinery rental, post and communication, water transport, and air
transport.
2. Composition of India’s GVC exports: The manufacturing sector dominates India's GVC exports, with
a share of 48.1 percent in 2010 and 68 percent in 2017. This was accompanied by a substantial drop
in service market share, which fell from 42.9 percent to 25.1 percent. The slow performance of
wholesale and retail trade services, as well as the renting of machinery, equipment, and transportation
services, contributed to the drop in services' share. India's GVC exports are less diverse than the world
average, with the top six industries accounts for nearly 66 percent of all exports. Coke and petroleum
account for 18.3% of GVC exports, followed by machinery rental (14.9%), chemicals (11.2%), basic and
fabricated metals (8.6%), and other goods (8.6%).

5. 1. Reduction in trade & custom tariff: The presence of reduced trade barriers and lower
international trade costs is a requirement for participation in GVCs. Because product manufacturing
is geographically scattered across economies, high trade costs in the form of high tariffs or nontariff
measures are passed on to downstream firms, raising the cost of finished goods, which has an
impact on GVC companies' production and investment decisions. By simplifying customs procedures
and improving border infrastructure, countries can minimize trade costs. Because GVC products
cross borders repeatedly and charges pile. Improving trade facilitation is critical for realizing greater
trade potential through lowering trade costs, both export and import.
2. Increasing FDI inflow: In addition, global experience reveals that there is a substantial positive
association between inward FDI growth and GVC export growth. Through a variety of spillovers, FDI
aids domestic firms in increasing their productivity. These include increased technology and
information transfer from global leaders to local enterprises in the areas of production,
management, and organizational practices. However, To attract more efficiency-seeking FDI, India
must improve in several key areas, including the country's ability to meet international production
standards; (ii) easy cross-border movement of goods, services, capital, and knowledge; (iii) easy
access to critical inputs such as industrial land, skilled labour, and infrastructure; and (iv) regulatory
assessment confidence.

6. 3. Quality infrastructure: The quality of a country's infrastructure determines its ability to link with
GVCs. One of the key reasons for GVCs' geographic fragmentation is to take advantage of different
production prices across countries and create each component in the cheapest locations. The quality
of an economy's electricity, industrial, logistics, and communication infrastructure is a major factor
in determining production costs. Since 2014, India's road quality has improved significantly, now
matching the average for growing nations. However, it continues to lag behind the economies of the
OECD.
Reference: *Drivers and Benefits of Enhancing Participation in Global Value Chains: Lessons for India
(adb.org)