This final project describes on how India's role as a developing nation in the Global Value Chain (GVCs) and how lead firms & Govt. policies can change the dynamics of GVCs in India by improving upon certain core ares in terms of polices and regulations to become an integral part and active player in the GVC to achieve its goal reaching 5 trillion economy by 2024.

1. GVCs is all about Creating Lead Firms
How Lead Firms & Govt. Policies can change the dynamics of
GVCs in India
Harish Kamat - India
September 2020
GVCs is all about Creating Lead Firms 1

2. India has set a roadmap to become a $5
trillion economy by 2024, for which the
performance of the manufacturing sector
will be key. However, the sector is held back
by its low integration in global value chains
(GVCs). India’s GVC integration, measured
as the foreign value-added to India’s
exports and domestic value-added to India’s intermediate good exports is not
very strong.
The primary reason for this being India’s historical inward-looking industrial
policies starting from import substitution and state-led industrialization. This
maybe because of India’s large market, policies focused on the domestic
market without considering the employment and technological benefits of
being part of a larger value chain. The current government’s recent policies
such as Industrial Corridors, De-Licensing, and the Make in India initiative, are
steps in the right direction but may not be enough. Indian policies do not
create enough lead firms, which are central to all aspects of a value chain.
Tata Motors in the automobile sector and
Ranbaxy in the pharmaceutical sector play
key roles in transferring technology,
establishing supply chains, and attracting
foreign investment. In general, India has very
few such sectoral lead firms. Skill shortage,
lack of access to finance, custom procedures,
and high taxes all prevent lead firms from
developing in India.
India backed out of RCEP - Regional Comprehensive Economic Partnership
(RCEP) - covering 15 countries with half the
world’s population was to attract the GVCs that
had spearheaded economic growth in many Asian
countries, like Bangladesh and Vietnam, but
largely bypassed India. Manufacturing and trade
policies thus need to focus on establishing stronger
GVC linkages by attracting more global lead firms to India.
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3. India must reform its import and export procedures, including goods and
services tax (GST) rules, ensuring quick paperwork and trade clearances. It
must focus on trade facilitation, and invest in world-class ports, rail
transport, air cargo and electricity. Land
acquisition difficulties and inflexible labour
laws hinder GVCs. Legal and tax disputes
must be settled quickly, instead of
meandering through the courts for decades.
India has improved its ease of doing
business’ in the recent years, but a long way
to go.
India has leapfrogged over the simple manufacturing phase to sophisticated
areas like computer software, pharmaceuticals and autos. It is part of GVCs
in all three. All forms of globalisation, including GVCs, create losers as well as
winners. In principle, taxing the winners should compensate for the losses of
the losers, by providing retraining and safety nets. In practice, taxing the
winners has proved difficult.
The Reserve Bank of India (RBI),
recently said that the Indian businesses
must work on ways to be a part of the
growing global value chain and urged
them to invest in health, education to
increase productivity to overcome the
COVID-induced economic crisis.
Two-thirds of the world trade occurs through global value chains and today
India is at the threshold of a big opportunity break into the global value chain.
This is one area where the government, authorities and the private sectors
need to work together. This is how we should capitalise on the opportunities
that the current crisis has opened up, especially this is how the new players
can now get into the global value chain and use the opportunity.
Some of the sectors that can show improvement in exports during the
COVID-19 period are drugs and pharmaceuticals. It is very heartening to
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4. know that some of our Indian players have become global suppliers of
medicines and drugs. This is an area India has certain competitive
advantages and that can be capitalised.
Other areas where India can become a part of the global value chain include
IT, hardware, electric appliances, electronics and telecommunications and
automobiles. This can also provide a cutting edge to India's export strategy
with considerable scope for higher value additions. It is also important learn
from global experiences and nurture those global trade agreements that go
beyond traditional market access issues.
Domestic policies need to focus on right mix of local and foreign content in
exports to enhance participation in global value chains. Provisions relating to
investment, competition, intellectual property rights and protection have a
larger positive impact on global value chains. Global value chain trades need
to be assiduously cultivated and integrated into the Indian ecosystem.
"There are five key areas that I propose to focus on that I think will determine
stability and step up India's growth in the medium term”
1. Human Capital with specific emphasis on Education and Health;
2. Productivity Improvement
3. Exports to Increase
4. Tourism sector development with excellent Infrastructure
5. Food Processing Centres to be increased
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