Global Value Chain
Division of labour is an idea which dates back millennia but the modern production systems have evolved as ‘Global Value Chains (GVC)’
Under Global Value Chains, production is broken down into activities and tasks carried out in different countries.
While trans-national co-operation in production is an old idea, this in last few decades have increased due to liberalization of trade and investment, lower transport costs, improvements in information and communication technology and improvement in logistics (Containerization was a game- changer – Read here)
CHINA and the EAST ASIAN tigers riding the GVC wagon
The Economic miracle of the East Asian economies can be explained by the fact that they plugged themselves into the GVCs
From manufacturing very low end products, individual countries moved up the value chain and specialised into specific products and technology reaping in the benefits of extreme specialisation and economies of scale ( Eg Taiwan in Semiconductors)
China when it opened up its economy, used its low cost labour, better infrastructure, a large domestic market and other advantages to place itself at the heart of multiple Global value chains in many industries.
India missed the Bus
India liberalised much later and even after liberalisation we could not plug ourselves into these global value chains due to rigid labour laws, poor infrastructure, issues of land acquisition, red tape and policies which discourage companies to get bigger.
India’s failure in this regard explains why India couldn’t see the kind of manufacturing growth that China and other east Asian countries saw. India needs to be a manufacturing and trading giant to realise its full potential.
Self Reliance is a mirage
In today’s world, self-reliance is a mirage for any economy which wants to realise its full potential.
Every country should play on the front foot based on its core strengths. It should let go of areas where it can’t be world class and cutting edge and focus on areas where it could do best.
While the Idea of self-reliance is great for the heart, our mind should make us believe the other way.
The way forward for India
It is important that India focuses on areas where it can be world class and gain global scale. It is imperative for India to join these Global Value chains and make the most of them. For this India needs a lot of structural reforms which we will cover in coming days. It also needs to join the global trading blocs.
It has to be Made in India and made from India for the world.
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Read more here
How Global Value Chains are transforming manufacturing – IMF
Global Value Chain Development Report 2019 – World Bank
What are the structural reform necessary for this?
We will try and cover those in explainer articles going forward.