Context : Trade and Investment Ministers of G20 nations, which together generate 75% of the world’s trade flows, agreed to map global value chains, integrate small businesses with them and ease trade documentation. But a comprehensive communiqué remained elusive on the thorny issue of the war in Ukraine as China and Russia blocked a paragraph flagging geopolitical issues.
What is Global Value Chains
- Global Value Chains refer to the process by which various stages of production are spread across different countries, each contributing a unique value to the final product. This strategic allocation of tasks enhances efficiency, reduces costs, and promotes specialization.
- For instance, a smartphone may be designed in one country, its components manufactured in another, and assembly conducted in yet another.
- India’s participation in GVCs spans sectors such as textiles, automotive, information technology, and pharmaceuticals, leveraging its skilled labor force and competitive advantage in certain stages of production.
What is Global Global Supply Chain
- Global Supply Chains encompass the broader framework that facilitates the movement of goods, services, and information across borders.
- They involve the entire lifecycle of a product, from raw material extraction to end-user consumption.
- These chains underscore the importance of logistics, transportation, and infrastructure.
- India’s strategic location and improving infrastructure position it as a key participant in GSCs, particularly as a major importer and exporter of goods.
- India is charting its way to be more involved in the global supply chains as an alternative to China as it seeks to become the third largest economy by the end of this decade.
- A supply chain refers to every step involved in delivering a finished product or service to customers. A disruption at any level leads to delays, unavailability or even rise in prices, affecting the markets at large.
India’s Role in Global Value Chain and Global Supply Chain
- Manufacturing Hub: India’s diverse manufacturing capabilities contribute to GVCs. Industries such as textiles, pharmaceuticals, and automotive components are integral parts of global production networks.
- Services and Technology: India’s prowess in the services sector, particularly information technology and business process outsourcing, enhances GVCs. It provides critical support functions that enable global operations.
- Agri-Exports: Agriculture contributes to GVCs through exports of products like spices, tea, and textiles. However, enhancing value addition in the agri-supply chain remains an opportunity.
- Infrastructure Development: India’s investments in infrastructure, such as ports and logistics, improve its connectivity within GSCs, facilitating efficient movement of goods.
- Attracting Foreign Direct Investment (FDI): India’s FDI policies and market potential make it an appealing destination for companies seeking to integrate into GVCs.
While India’s participation in GVCs and GSCs is substantial, challenges persist:
- Infrastructure Deficits: Despite improvements, infrastructure gaps can impede seamless integration into GSCs, necessitating ongoing investments.
- Regulatory Complexity: Streamlining regulations, customs procedures, and trade facilitation could enhance ease of doing business.
- Skill Enhancement: Addressing skill gaps ensures India’s workforce remains competitive, especially in high-value stages of production.
- Environmental Sustainability: Sustainability concerns are gaining prominence in GVCs and GSCs. India needs to align its industrial practices with environmental standards to meet global expectations and attract environmentally-conscious partners.
- Intellectual Property Protection: Intellectual property rights (IPR) protection is vital to encourage innovation and technology transfer. Strengthening IPR laws and enforcement mechanisms is crucial for attracting technology-intensive industries.
- Fragmented Agriculture Sector: India’s agriculture sector is fragmented, leading to inefficiencies in production, distribution, and marketing. Modernizing agriculture, improving supply chain infrastructure, and implementing market reforms are vital
- India, which has been an ideal market for the global sellers, is now emerging as a manufacturing hub with an immense potential. Several top companies like Apple have already started production in India while the country aims to begin domestic microchips production by the end of 2024.
- India is also eyeing a key space in the electronics sector with ‘Made in India’ laptops and computers. It has already become the second largest producer of mobile phones.
- The western world is shifting its supply chains from China in view of the geopolitical situation and India seeks to make most of this opportunity. The government has set an ambitious target of reaching $2 trillion in overall exports every year by 2030.
- India’s potential within GVCs and GSCs is immense. By fostering an enabling environment for trade, investing in infrastructure, and nurturing a skilled workforce, India can further integrate into global chains. This integration not only boosts economic growth but also enhances the nation’s competitiveness on the global stage.