New Delhi: Improving labor laws, simplifying taxation and creating a stable tariff environment are imperative to facilitating greater trade between India and the world, according to a new report. ‘Building Resilient Global Value Chain Linkages in India: Findings from an Enterprise Survey’ – a report jointly published by the Observer Research Foundation (ORF) and ORF America – examines how India can better integrate into global value chains (CVM) in the post-COVID world.
“The risks posed by supply chain shocks have never been more visible, following the worsening crises of the US-China trade war, the COVID-19 pandemic and the Russian-Ukrainian conflict. Global value chains, once seen as the magic bullet for economic development, are coming under increasing scrutiny,” the think tank said in a statement.
The report examines how India can better integrate into GVCs based on the results of a survey of 200 domestic and foreign companies in India in the fields of aerospace and defence; automobiles and automobile components; capital goods; design and manufacture of electronic systems (ESDM); new and renewable energy; and pharmaceuticals and medical devices.
“The five biggest constraints businesses face in growing in India have been identified as: tax rules and policies; quality of infrastructure; uncertainty in trade and tariff policy; access to capital; and availability of raw materials,” he said.
Failure to meet quality standards was identified as a major challenge to GVC integration, while “Make in India” was seen as the most effective government initiative.
The study found that the most urgent policy change needed to support GVC integration is investing in quality infrastructure – both physical (such as power and transport networks) and digital ( such as clarity of data rules and data centers).
“As far as institutions are concerned, upgrading labor law and simplifying taxation have been identified as imperatives,” he said. “Creating a stable tariff environment and reviewing the link between trade and investment policy are key to facilitating trade.”
The report also offers nine recommendations to build resilience in India’s ties to GVCs.
The priority areas are: the identification of critical vulnerabilities in supply, the promotion of a stable regulatory environment, the harmonization of logistics and transport rules and the establishment of policy coherence between industrial policy and related pathways such as consumer protection and green transition.
Talking about the survey results, the report states that the unanimous choice for India’s trading partner was the United States, followed by the United Kingdom and the United Arab Emirates. “There was little support for the Regional Comprehensive Economic Partnership (RCEP) grouping.”
No less than “87% of survey respondents in companies of various sizes and sectors said that integrating GVCs is very important to their businesses. Nearly nine in ten respondents (89%) agreed that the pandemic had impacted their perception of GVCs.
“Overly dependent and fractured production systems expose the industry to risk and create an uncertain business environment. This has a direct impact on short- and long-term business decisions related to scale and investments,” a- he declared.
While respondents from the automotive sector identified national policies as the main factor influencing investment decisions, companies in all sectors consider global macroeconomic conditions as the main driver of these decisions.
Over 70% of respondents said India’s trade policies were very important in facilitating GVC integration. This was particularly evident in the medical devices and pharmaceutical industry (93% of respondents).
“Availability of raw materials” was highlighted as the most important factor defining foreign direct investment decisions (74% of respondents), and “skilled labor” (70%) came second, adds the press release.
