Is India Moving Up the Global Value Chain?

Discussions about world trade have been redefined from that on trade in final products to discussions on the value-added content of trade. Increased possibilities of offshoring or relocating production activities around the globe, in the face of declining communication and transport costs, have allowed slicing up the production of a single commodity to be spread across the most economically viable countries (Sachs 1997). India as a participant in world trade is not insulated from this trend. We investigate India’s participation in value chains focusing on its exports and unravel changes in stages of value chain participation for key export sectors of India commenting on its implications for India’s trade policy.

A standard value chain of most products may be described as follows: the activities of designing the product, deve­loping it and innovation are at the very start of the value chain. Sourcing of prim­ary products are in the upstream stages, manufacturing and assembly of the product are the middle stages of the value chain and finally transporting it, branding and marketing, distribution and post-sale services are the downstream stages of production (Figure 1). Product development, research and deve­lopment (R&D) and the final stages of production are the most value-adding stages. Hence, participating in these stages of production through exp­orts yields the greatest gains from trade. Considering developing economies alone, participating in skill-intensive R&D and designing stages is a difficult proposition if the industry in itself is not present in the country. However, participation in the production process that is upstream participation in the phase of supplying raw materials or semi-processed intermediates are easier options to reap gains from trade. An Organisation for Economic Co-operation and Development (OECD) analysis has shown that developing countries with the fastest growing global value chain (GVC) participations have a gross domestic product (GDP) per capita growth rate which is 2% higher than the average.¹ The need for greater integration has been emphasised for efficient functioning and increasing gains from trade for all countries which are a part of value chains (Blanchard 2015).