Global commerce has evolved since the end of the 20th century. Instead of trading finished goods such as automobiles. Nations now trade components and parts which, when combined, create an end product. With lower transport and communication costs and communication costs, the production inputs can be procured from the most cost-effective location. Each country participating in global trade today has its own place in the worldwide value chain.
In the case of developing nations, participating globally in value chain systems is crucial to their economic growth. Based on the United Nations, there appears to be positive correlation between participating. In this value chain and growth in GDP per capita rates.
India Is Global Involved
India thanks to its low labor costs and a huge workforce, understands this is true. Since the mid-1990s it has been working to boost both the volume of trade as well as value chain engagement. India’s presence within global value chain has increased from 57th position in 1995 to 45th position in 2009. As per the OECD Trade in Value Added (TiVA) Statistics.
Monitoring the distinct value chains of a country across the globe provides an intriguing image of its economic connectivity by industry. In the field of manufacturing, for example, India is more closely tied in relation to Asia in the south Asian region, particularly for optical and electrical equipment. Services On the other hand have a greater integration with western nations like those of the United States, the United Kingdom and a handful of European countries, and Hong Kong.
Some sectors stand out that stand out, such as one called “manufacturing not elsewhere classified” and recycling industry that includes gems and jewellery. India is ranked second.
Software Support Global
Computers, software support, and other related services to information technology which have been the main driver of India’s development in the past 15 years also perform well internationally. For business and other related products, India ranks sixth and 13th in the report by the OCED.
The sector of textiles, which is a major source of employment in which Indian exports have historically been booming is still performing well, putting India at 13th on the list of value-chain participation for textiles. India is also seeing improvements in the optical and electrical equipment and transport equipment industries and its participation in trade rising from 50th to 31st , and 33rdrespectively.
This growth is great news as growing manufacturing is at the heart in India’s effort to provide jobs for huge numbers of workers with low skills. But there’s an opportunity to improve.
The Free Trade Ante Is Being Pushed Up
To maintain the momentum, India, like other nations, has been in the process of negotiating numerous free trade agreements throughout the past two decades such as those which are signed by ASEAN, Singapore, Japan and South Korea. They help facilitate international trade through reducing trade barriers. There are many different free trade agreement (FTAs) in negotiation, similar to those signed which are in place with Australia, Canada, Thailand and Israel.
The utilisation rate for these deals is ranging between 5% and 15%, which means that they are doing low trade in goods that are eligible for benefits of free-trade.
Rules of origin pertain to the value added share of the country that exports of the final product. In general it is the case that an FTA benefit is grant to an import coming from one FTA Partner only when that particular country is responsible for some percentage of the value of the product’s final value. The majority of India’s FTAs have this requirement as 35% to 40%.
In theory, this rule safeguards India by preventing other nations from benefitting from free trade by exporting their goods to India via the Indian FTA Partner.
Changing Production Processes
However, in the current world of ever-changing production processes, imposing the access of India on the highest value single-country enhancements is restricting. Instead rules of origin, and customs that take a specific sector or regional approach could aid India’s integration into global value chains.
Another aspect is local content requirements that some countries place in place in order to develop the local economy (as India does with manufacturing).
India needs foreign investors looking to purchase inputs from other countries to ensure efficient production to purchase Indian instead. This is against the concept of improving production by value chains. This reduces the potential for India to be an attractive investment option for manufacturing in international markets.
The nation would be wise to take these concerns into consideration. When it participates in ongoing discussions of the Regional Comprehensive Economic Partnership (RCEP). Which is a propose trade agreement that will be sign between 10 ASEAN countries and six additional regional partners. Which includes India, China and Australia.
With India’s growing integration into Asia The agreement has great potential for further integrating. Its electrical, transport and optical equipment within global supply chains. However, doing this effectively requires careful consideration regarding rules of origin as well as the local content requirements.
Domestic Reforms To Improve Global Integration
Discovering the potential of India to become an Asian manufacturing hub is not an easy task. To expand, Indian industry needs improved infrastructure for transportation and faster customs clearances. This will help ease the flow of products between factories and ports.
Comparatively to China and its fast transportation between ports and to them, India is a long way in comparison. When compared with other Asian countries, India’s transport time is quite long. The laws have hindered the growth of Indian manufacturing. Retraction and expansion are subject to numerous approval processes by the government which limit the flexibility.
Certain of the issues are being address by the current Indian government. Which has introduced reforms that will facilitate investment via initiatives like the Make in India initiative and other initiatives. The intention is to boost manufacturing activities. The government has however not made any effort to reform or streamline. The laws governing labor to better match with its national development priorities.
Global value chains are the most advantageous for those countries. That participate to the highest value-added parts of the production chain. For instance, it’s more lucrative to create the computer that drives the automated vehicle than the wheels. This requires a skilled labor workforce, something India despite numerous. Improvements in manufacturing and trade is still not able to reach.