India's Rise in the Global Value Chain: A Case Study for Developing Countries

Introduction

India's position in the global value chain has undergone a significant transformation in recent years. Historically known as the "world's back office," India was primarily involved in labor-intensive operations such as IT support, mobile app development, and call center services. However, with its skilled and educated population, India has gradually shifted towards high-end research and development.

In today's interconnected world, global value chains play a crucial role in international trade. These chains involve multiple countries and regions, encompassing various stages of product development, from design to distribution. Roughly 70% of international trade now involves global value chains, highlighting their importance.

Government incentives and India's expanding digital economy are what are driving its rise in the global value chain. The Indian government offers incentives such as the Production-Linked Incentive (PLI) scheme, which provides subsidies based on production levels. Simultaneously, the government imposes high tariffs on imported products, incentivizing domestic manufacturing.

These initiatives have led to the rise of India as a hub for high-value services. Many Fortune 500 companies now conduct 50% to 60% of their global engineering and research and development work in India. The country has demonstrated exceptional software development skills, innovation, and entrepreneurship over the past few decades.

India's large domestic market has also contributed to its ascent in the global value chain. As the world's fifth-largest economy, India offers significant opportunities for businesses. This growth has made India an important case study for other developing countries looking to enhance their service industries.

While India's progress in the global value chain has been remarkable, challenges remain. The country's production-linked incentive scheme has seen an underwhelming response in certain sectors, and infrastructure development is a key area of focus. Nevertheless, India's digital transformation, government incentives, and commitment to infrastructure improvements position it as an attractive destination for both investors and multinational corporations.

India's Position on the Global Value Chain

India has historically been known for its focus on low-value activities in the global value chain. It was referred to as the "world's back office," with primary involvement in labor-intensive operations such as IT support, mobile app development, and call center services. However, in recent years, India has undergone a significant shift towards high-value services and engineering work.

This shift has been facilitated by India's skilled and educated population. With a large pool of talented individuals, India has been able to attract Fortune 500 companies, which now leverage the country for their engineering and research and development (R&D) needs. In fact, many of these companies conduct 50% to 60% of their global engineering and R&D work in India.

The impact of India's skilled and educated population extends beyond just attracting multinational corporations. It has also fueled India's own digital economy and domestic market. As the world's fifth-largest economy, India offers significant opportunities for businesses. This growth in the domestic market has played a crucial role in India's ascent in the global value chain.

India's rise in the global value chain is not only beneficial for the country but also serves as an important case study for other developing countries. India's success showcases the potential for developing countries to enhance their service industry and move up the value chain.

However, challenges still remain for India. While the government has implemented incentives such as the Production-Linked Incentive (PLI) scheme to promote domestic manufacturing, there have been underwhelming responses in certain sectors. Infrastructure development is also a key area of focus for India to continue its progress in the global value chain.

Despite these challenges, India's digital transformation, government incentives, and commitment to infrastructure improvements position the country as an attractive destination for both investors and multinational corporations. India's journey serves as a testament to the potential for developing countries to transform their economies and participate in the global value chain.

India's Journey to Becoming the Fifth-Largest Economy

India's rise in the global value chain has been accompanied by its journey to becoming the fifth-largest economy in the world. Over the past decade, India has experienced significant growth in its GDP, doubling it to over $3.7 trillion.

This growth has been fueled by the attractiveness of the Indian market for multinational corporations. With its large domestic market and a population of over 1.3 billion, India offers significant opportunities for businesses. In fact, a survey conducted in 2022 revealed that more than 70% of MNCs were planning to invest in India in the next 3–5 years.

One of the key factors contributing to India's rise in the global value chain is the government's approach to enhancing manufacturing capabilities. The government has implemented the Production-Linked Incentive (PLI) scheme, which provides subsidies based on production levels. This carrot-and-stick approach, with high tariffs on imported products, incentivizes domestic manufacturing.

The success and challenges of the PLI scheme highlight the importance of long-term competitiveness in value chains. While some sectors have responded well to the scheme, others have shown underwhelming results. It takes decades to become globally competitive in value chains, and India is still working towards that goal.

Infrastructure development is another key focus area for India's journey in the global value chain. The government has announced plans to invest $1.4 trillion in developing infrastructure, including roads, railways, and airports. These investments will provide the necessary foundation for India to continue its economic growth and attract more investments and multinational corporations.

Despite the challenges, India's digital transformation, government incentives, and commitment to infrastructure improvements position it as an attractive destination for investors and multinational corporations. India's journey serves as a case study for other developing countries looking to enhance their service industry and participate in the global value chain.

India's Manufacturing Sector and Electronics Industry

India's position on the global value chain has been steadily rising, particularly in the manufacturing sector and electronics industry. Here are some key highlights:

• India has emerged as the second-largest mobile phone producer globally, after China. This growth has been fueled by investments from major players like Samsung and Foxconn.

• Samsung has been manufacturing phones in India since 2007 and inaugurated the world's largest mobile factory near New Delhi in 2018. Foxconn, the main assembler of Apple's iPhone, also plans to scale up its manufacturing capabilities in India, to produce 25% of iPhones in India by 2025.

• Apple's plans to produce a quarter of its iPhones in India further solidify the country's position as a key player in the global electronics industry.

• India's digital transformation has been a driving force behind the growth of high-value activities in the IT industry. Many Fortune 500 companies now conduct a significant portion of their global engineering, research, and development work in India.

• India's large domestic market, as the world's fifth-largest economy, has played a crucial role in attracting businesses and driving the country's ascent in the global value chain.

• The government's Production-Linked Incentive (PLI) scheme, which provides subsidies based on production levels, has incentivized domestic manufacturing. However, responses to the scheme have been underwhelming in certain sectors.

India's journey in the global value chain serves as an important case study for developing countries looking to enhance their service industry and participate in high-value activities. While challenges remain, such as infrastructure development, India's digital transformation, government incentives, and commitment to infrastructure improvements position it as an attractive destination for investors and multinational corporations.

The establishment of global captive centers, also known as global capability centers, has further driven the growth of high-value activities in India. These centers, operated by global corporations, provide specialized functional support and have the potential to generate cost savings of up to a billion dollars.

India's focus on infrastructure development, with plans to invest $1.4 trillion in developing roads, railways, and airports over the next five years, is another game-changing factor that contributes to its attractiveness as an investment destination and a participant in the global value chain.

Overall, India's rise in the manufacturing sector and electronics industry showcases the country's potential for economic growth, job creation, and participation in the global value chain. With its digital savviness, skilled workforce, and commitment to infrastructure improvements, India continues to position itself as a key player in the global market.

Investments in infrastructure and manufacturing

India's journey in the global value chain has been accompanied by its commitment to infrastructure development and investments in the manufacturing sector. These initiatives are crucial for India's continued progress in the global market and its attractiveness to investors and multinational corporations.

Challenges and improvements in India's infrastructure

Infrastructure development is a key focus area for India's journey in the global value chain. While the country has made significant improvements in its infrastructure over the years, challenges still remain. However, year after year, the infrastructure in India has become much more reliable and of better quality. The government's commitment to infrastructure improvements has played a significant role in attracting businesses and driving economic growth.

Plans to develop infrastructure for semiconductor manufacturing

India is also preparing itself to develop and manufacture semiconductors, which requires robust infrastructure. This includes high-speed connectivity and a reliable power grid. These infrastructure developments are essential for India to establish itself as a global player in the semiconductor industry.

The government's $1.4 trillion investment in infrastructure

In 2021, the Indian government announced plans to invest $1.4 trillion in developing infrastructure, including roads, railways, and airports, over the next five years. These investments will provide the necessary foundation for India to continue its economic growth and attract more investments and multinational corporations. The government's commitment to infrastructure improvements is a game-changing factor that contributes to India's attractiveness as an investment destination and a participant in the global value chain.

Impact of infrastructure development on India's economic growth

Infrastructure development plays a crucial role in India's economic growth. By improving transportation networks, India can facilitate the movement of goods and people, reducing costs and increasing efficiency. This not only benefits businesses but also improves the livelihoods of individuals by generating job opportunities and enhancing their overall quality of life.

Attractiveness of India's digital savviness for investors and MNCs

India's digital transformation has been a driving force behind its progress in the global value chain. With a digitally savvy population, India has become an attractive destination for investors and multinational corporations. Many Fortune 500 companies conduct a significant portion of their global engineering and research and development work in India, showcasing the country's software development skills, innovation, and entrepreneurial spirit.

Overall, India's investments in infrastructure and manufacturing, along with its digital savviness, skilled workforce, and commitment to continuous improvements, position the country as a key player in the global market. India's journey serves as an important case study for other developing countries looking to enhance their service industry and participate in high-value activities.

Navigating Challenges and Future Outlook

As India continues to rise in the global value chain, it faces various challenges and opportunities for future growth. Navigating these challenges and capitalizing on their potential will be crucial for India's trajectory in the manufacturing and services industry.

The importance of reliable infrastructure for manufacturing

Infrastructure development plays a vital role in India's progress in the global value chain. While the country has made significant improvements in its infrastructure, challenges still remain. However, year after year, the infrastructure in India has become much more reliable and of better quality. The government's commitment to infrastructure improvements has played a significant role in attracting businesses and driving economic growth.

India's growth potential and market attractiveness

India's rise in the global value chain has positioned it as an attractive destination for investors and multinational corporations. With its large domestic market and a population of over 1.3 billion, India offers significant opportunities for businesses. The government's Production-Linked Incentive (PLI) scheme, which provides subsidies based on production levels, has incentivized domestic manufacturing. Despite challenges in certain sectors, India's growth potential and market attractiveness continue to drive its progress in the global value chain.

Digital savviness and innovation are driving India's value proposition.

India's digital transformation has been a driving force behind its success in the global value chain. With a digitally savvy population, India has become an attractive destination for investors and multinational corporations. Many Fortune 500 companies now conduct a significant portion of their global engineering and research and development work in India, showcasing the country's software development skills, innovation, and entrepreneurial spirit. India's focus on innovation and creativity has propelled its value proposition in the global market.

Success stories and acquisitions from the Indian market

India has witnessed several success stories and acquisitions in recent years, highlighting its potential to deliver valuable services worldwide. Companies like Paytm and Flipkart have emerged as leaders in the Indian market and have made significant acquisitions globally. These success stories demonstrate India's transition from being a back-office support center to delivering rich, innovative, and creative services that have global value. India's success stories serve as inspiration for other developing countries looking to enhance their service industry and participate in high-value activities.

India's potential to deliver valuable services worldwide

India's rise in the global value chain showcases its potential to deliver valuable services worldwide. With its skilled workforce, digital savviness, and commitment to continuous improvements, India continues to position itself as a key player in the global market. The establishment of global captive centres, operated by global corporations, has further driven the growth of high-value activities in India. These centers provide specialized functional support and have the potential to generate significant cost savings. India's potential to deliver valuable services worldwide contributes to its attractiveness as an investment destination and a participant in the global value chain.