While 87 per cent Indian companies of varying sizes say that global value chain (GVCs) integration is very important to their firms, nearly nine out from 10 respondents (89 per cent) agreed that the pandemic has impacted their perception of GVCs, a new report showed on Thursday.
The most urgent policy change required to support GVC integration is investing in quality infrastructure — both physical (such as power supply and transport networks) and digital (such as clarity on data rules and data centres), according to the report jointly published by the Observer Research Foundation (ORF) and ORF America.
GVCs, once viewed as the silver bullet for economic development, are coming under increasing scrutiny amid the global macro-economic environment, triggered by supply chain shocks, the US-China trade war, pandemic and the Russia-Ukraine conflict.
The report closely examined how India can better integrate into GVCs, while building resilience into its GVC linkages.
Over 70 per cent of respondents said India’s trade policies are very important in aiding GVC integration. This was especially evident in the medical devices and pharmaceutical industry (93 per cent of respondents).
The unanimous choice for India’s trade partner was the US, followed by the UK, and the UAE. There was little support for the Regional Comprehensive Economic Partnership (RCEP) grouping.
Availability of raw materials’ was highlighted as the most important factor defining foreign direct investment decisions, and skilled workforce’ came in at a close second.
The five greatest constraints firms face in scaling up in India were identified as taxation rules and policies; quality of infrastructure; uncertainty in trade and tariff policy; access to capital; and availability of raw materials.
“The inability to meet quality standards was identified as a key challenge to GVC integration while Make in India’ was seen as the most effective government initiative,” the findings showed.
“With regard to institutions, upgrading labour laws and simplifying taxation were identified as imperatives. Creating a stable tariff environment and reviewing the link between trade and investment policy is crucial to facilitate trade,” the report added.
The report was based on a survey of 200 domestic and foreign companies in India across six sectors.