India needs GVCs

The establishment of World Trade Organisation in 1995, saw countries slashing trade barriers and adopt policies to attract FDI. This facilitated advancement of global value chains (GVCs) that internationalised production fragmentation thus promoting economic growth, increasing job creation and reducing poverty. With the advent of ICT revolution world witnessed intensified globalisation. As per World Bank, about 50 per cent of global trade is via GVCs. This is twice as much as conventional trade.

India contributes only about 2 per cent to world merchandise exports, as the full potential of its manufacturing sector remains untapped. In GDP terms India is the third largest economy, globally. But in terms of per-capita income India remains in the low-middle income country group as per World Bank classification. Low exports and per capita income in India persist due to weak linkages with GVCs in the manufacturing sector.

Geopolitical worries

Recent geopolitical tensions have raised concerns over the current order of globalisation. Global organisations continue to transition to a ‘China plus one’ strategy to diversify their country’s risks, amidst this economies like India, Vietnam, Malaysia and Japan have a chance to allure these multinational organisations and GVCs.

Meanwhile, as the world advances towards Industry-5.0, semiconductors would play a crucial role in global geopolitics, much like the role that reserves of oil and gas have played so far. McKinsey & Company estimates that global semiconductor industry will be a $1 trillion industry by 2030. The supply chain disruptions due to Covid-19 made the world realise that currently China and Taiwan dominate the value chains of semiconductor industry, giving thrust to ‘China plus one’ strategy.

Recognising the critical role of technology in development, the Centre has taken initiatives like Digital India, Smart Cities and Indian Semiconductor Mission, to advance India’s digital trajectory. Semiconductors are at the heart of electronics industry. Deloitte estimates India’s semiconductor market will be a $85 billion industry by 2030, generating about six lakh jobs in India.

It is an opportune time for India to integrate in one of the most value chain intensive sector which is electronics. So far India’s gains from the emerging order of globalisation have been limited to assembly lines. This could be due to India’s protectionist trade policy in comparison to other emerging economies.

India must evaluate its policy framework to take advantage of the current geopolitical scenarios and attract investments from global corporations.

India aims to be an export manufacturing hub, and is showcasing mobile phone manufacturing as the success story of ‘Make in India’ initiative. Towards this objective, the Centre has been evolving a framework to attract production lines of export-oriented products like smartphone to India.

Recently, in January 2024 the Centre reduced import duties from 15 per cent to 10 per cent on mobile-phone components such as battery covers, GSM antenna, camera lens, SIM socket and other parts. Import duty on inputs used to manufacture mobile parts were also zero rated. Further, under the PLI scheme electronics manufacturing specifically mobile-phones is being aggressively promoted.

Reducing import duties on mobile components, has incentivised setting up more large-scale smartphone assembly lines in India and advancing its exports. India has a massive potential to establish itself as a global electronics manufacturing export hub, specifically for mobile-phones which contributed over 40 per cent to domestic electronics production in FY22.

Further integrating into GVCs would facilitate India’s manufacturing units to learn and adopt the best technology and management practices thereby moving up the value chain, overtime.

The writer is Assistant Professor at O.P. Jindal Global University and a Visiting Fellow at PIF

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