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Do we need to integrate more with Global Value Chains?

A successful export strategy no longer involves manufacturing a product in one country and exporting to other countries.  Instead, the multiple components of a typical export product are produced by different companies, often headquartered in developed countries but offshoring production to emerging economies based on the competitiveness of that location in producing that particular component.

Components are often shipped to other countries for further value addition. The final product is ultimately assembled in another place for final shipment to different markets. The iPhone, for example, has 178 components that are sourced from 200 different suppliers across 26 countries! Yes, the world is flat and an integrated one.

India has benefited from this new world. Our share in world exports of goods reached 0.5% in 1990. It reached 0.7% in 2000 and 1.8% in 2021.  China has garnered the maximum benefit, increasing its share from 3.9% in 2000 to 15% in 2021. This star performance reflects the fact that it shaped its trade policy to take advantage of the GVC phenomenon. And China is treated as one of the manufacturing hubs of the world.

Do you believe that India needs to integrate more with GVCs or global supply chains so that it can engage in more manufacturing exports? Do we need further reduction in Import Duties for the same in a balanced manner in the interest of our existing mining and indigenous manufacturing industries and required structural change in employable skill? What matters more, absolute rate of protection or effective rate of protection?

Looking forward to your opinion.

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