ISSN 2330-717X

Struggling Indian Manufacturing: Time For Transformation In Global GVC To Reverse Gears – Analysis

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While most economists were  exasperated over the third quarter GDP growth, the authority considered the growth  significant as it bottomed out the downswing. The Economic Affairs secretary was upbeat and asserted that it signaled for a bounce back in the growth in the successive quarters.

India’s GDP growth witnessed downswing consecutively for five  quarters since July-September 2018-19. It slipped to 7 percent (from 8 percent in the preceding quarter)  to 4.5 percent in July-September 2019-20. In October- December 2019-20, it bounced back to 4.7 percent  

Manufacturing was the drag on the growth. Its growth declined from 5.6 percent in second quarter of 2018-19 to a negative growth of 0.2 percent in third quarter of 2019-20. It failed to respond to mega reform in corporate tax structure in last September, when they were brought down at ASEAN  level.

Analysts observed that Make in India had lost steam. Private investors were disenchanted. Improvement in Ease of Doing business had little impact on domestic investors. 

Underpinning the necessity for transformation in manufacturing practices , which will give a new lease of life to Make in India, Economic Survey  2019-20 advocated India to be the global hub for assembly operation. It asserted for “integrating Assemble in India for the world into Make in India” 

Non-adaptability of modern manufacturing practices was   the reason for failure of Make in India. Manufacturing followed the traditional process,  which was “input base” . Whereas global manufacturing  practices shifted to  Supporting Base industry under GVC (Global Value Chain) system. The development of automobile and electronic industries are the cases in point. These industries overrode the traditional industries like textile, chemical and basic metal industries. With the advent of new technology, Supporting Base and GVC systems were the new trend in the global manufacturing practices.

Supporting Industry refers to manufacture of component and parts ,required for assemblers.  It is a group of industries within a country who manufacture component and parts and supply them to the assemblers domestically as well as  across the border. Supporting Industry is low cost capital and high labour intensive. GVC manufacturing, which is   globally  fragmented, reaps the benefits of low cost manufacturing in cross-border countries. 

In value chain  manufacturing, each participant has specialization in a particular manufacturing process. This specialization is based on the country’s comparative advantages in terms of technology and cost of production. These products are not produced from the beginning to final within a  particular country. Their production are spread over the countries. For instance, China, world’s biggest centre for chain manufacturing,  specializes in low skilled labour intensive stages of production , whereas richer countries specialize in capital and skilled intensive stages, such as R&D.                     

Against this backdrop, questions arise  which processes should be given focus to give a new lease of life in the Indian manufacturing. A lesson from Vietnam’s success in manufacturing is advisable. India has abundant labour force and significant unexploited export potential. Vietnam’s success story of Supporting Industry base industrial growth, including GVC, should be the guiding principal for transformation of India’s manufacturing process. 

In India, the fast growth of Japanese led automobile and Chinese led mobile phone manufacturing are the cases in point for  Supporting Industry base industries. Lured by vast unexploited automobile market , Japanese thronged in investment in Indian automobile industry.  Hamstrung by rise in cost of manufacturing and unabated US- China trade war, a number of Chinese mobile phone manufacturing companies shifted to India. Today, India is the second biggest manufacturer of mobile phones in the world. From a mere two companies in 2014, the country has 265 manufacturing companies of mobile phones, parts and accessories. These give a lead to India to be the potential global hub for GVC in automobile and mobile phone manufacturing. 

Economic Survey suggested that India should focus on exports of NP (Network Product) which are produced under GVC with the ownership of  MNCs.  In the operation, MNCs depend on transnational companies as an workshop in developing nations, who are blessed with comparative cost merits and medium skilled manpower. Investment by Apple, Samsung, Sony for manufacturing mobile phones in India are the cases in point. 

A surge in exports of NP might upturn India’s manufacturing growth, according to Survey.  Despite making a big success in Supporting Industries like automobile and mobile phones, India is at low level in exporting NP as against China and Vietnam. NP accounted for 10 percent in India’s export  as compared to 52 percent in China and 47 percent in Vietnam in 2018.

In other words, the Economic Survey suggested for a relook at Make in India, with a focus on transformation in manufacturing process, based on  Supporting Base industries under the umbrella of value chain manufacturing across the border.  It will pave the way for upturn in manufacturing growth and negate the risk of downswing due to slump in demand.

Subrata Majumder

Subrata Majumder

Subrata Majumder is an adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

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