Make What In India?

Question 1

What to make in India?

Answer 1

1. Unskilled labor intensive manufactured products like textiles, clothing, footwear, toys.
2. Hub for final assembly in products with a GPN.

Question 2

Which products have GPNs?

Answer 2

Machines
Telecommunications
Road Vehicles
Scientific Equipment
Photographic Apparatus 

• Athukorala 2011

Question 3

What exactly are GPNs?

Answer 3

Worldwide reduced tariffs and increased technology -> production spread out.
Trade resulting from interconnected production across countries creating vertical sequential chains is called fragmentation trade/ trade in NP (network products)/vertical specialization trade.
GPN is a way to analyze the links between a key firm and its suppliers in different countries.
GPN implies that trade involves the exchange of final goods + intermediate.

Each country specializes in a fragment of the production process based on comp adv.

China -labor abundant - electronics
Japan, EU, capital abundant -

India locked out of the process

Question 4

Export Growth Performance and Domestic Value Added Share of Exports: An Overview

Answer 4

Growth Rates of Merchandise Exports

2000 to 2012 2012 to 2016
Oil 40% -20%
Non Oil 18% -1%
Total 20% -4%

2000 to 2006 2006 to 2012
Oil 45% 21%
Non Oil 18% 17%
Total 20% 17%

Composition of exports

Domestic Value Added Content of Gross Exports

Question 5

Composition of Exports

Answer 5

We are labor abundant but we export skilled labor or capital intensive.

Share of capital intensive has increased from 2000s and that of unskilled labor has SHRUNK!

1. India has comp adv in poorer states like Africa but it comes at the cost of losing market shares in richer countries which are quality conscious. Rich markets offer huge potential for India.

C: Specialization in traditional labor intensive products -> general loss in Indian exports in advanced countries markets.

2. Declining dominance in OECD exports. China’s has increased. India has greater potential in advanced countries but this requires integration in GPNs and realignment toward our real comp adv: labor intensive.

Question 6

Conclusion and Policy Implications

Can India become the next workshop of the world?

Answer 6

Indian industries holding greatest potential involve:

(i) Traditional labor intensive products
(ii) NPs (labor intensive assembly)

What policy best to exploit above potential?

i. Low costs for transport, communication, etc (service link costs) is crucial.
ii. Supply chains require labor plus supervisory manpower. Training and skill development in that regard is crucial.
iii. Create level playing field for domestic, foreign, and joint ventures.
iv. An outward looking but not an ultra export promoting strategy is best for India they argue.
v. A neutral trade policy with no distortions -> specialisation as per comp adv.