ORF GVC Survey Report August

Building Resilient
Global Value
Chain Linkages
in India Findings from an
Enterprise Survey
Terri Chapman, Jhanvi Tripathi, and Rakesh Kumar Sinha

©2022 Observer Research Foundation All rights reserved. No
part of this publication may be reproduced in any form without
permission in writing from ORF.
Attribution: Terri B. Chapman, Jhanvi Tripathi, and Rakesh

Kumar Sinha, Building Resilient Global Value Chain Linkages
in India: Findings From an Enterprise Survey, August 2022,
Observer Research Foundation and Observer Research
Foundation America.
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Design and layout: Rahil Miya Shaikh
ISBN: 978-93-90494-35-4
ISBN Digital: 978-93-90494-43-9
All photos used in this report were sourced from Getty Images.
Pg. 2 – Comezora; Pg. 6 – SOPA Images; Pg. 10 – SOPA Images;
Pg. 16 – RicAguiar; Pg. 20 - Sajjad Hussain; Pg. 48 – Richard
Turnbull / EyeEm; Pg. 56 – Philippe Lissac; Pg. 58 - imaginima
Pg. 68 - Sam Panthaky
Contents
Executive Summary 6
Introduction 10
Methodology 16
Results and Discussion 20

Global Value Chains in Uncertain Times
Trade Policy
The Domestic Policy Environment
Policy Priorities and Options 48

The Objectives for India
Policy Priorities
Strategies for Building Resilience
Conclusion 56
Annex: GVCs in India: Survey 58

Questionnaire
About the Authors 68

Tables
1. Geopolitical developments shaping investment decisions in India (%) 30
2. Preference for trade deal 34
3. Greatest constraints to scaling up 40
4. Constraints to GVC integration 42
5. Policy options 51
Figures
1. Survey respondents 18
2. Importance of global value chain integration by industry 25
3. Importance of GVC integration by firm size 26
4. Post-pandemic urgency of GVC integration 29
5. Dependence of firms on imports and exports 31
6. Importance of upgrading India’s trade policy 32
7. FDI decisions in India 38
8. Priorities for India 44
9. Effective government initiatives 46
Boxes
1. What are Global Value Chains? 12
2. Creating Resilience in GVCs 22
Abbreviations
GVC Global Value Chain
PPE Personal Protective Equipment
MNC Multi-National Company
FTA Free Trade Agreement
API Active Pharmaceutical Ingredients
TPF Trade policy Forum
G2G Government to Government
UK United Kingdom
US United States
EU European Union
UAE United Arab Emirates
RCEP Regional Comprehensive Economic Partnership
SPS Sanitary and Phytosanitary Measures
TBT Technical Barriers to Trade
NTB Non-Tariff Barriers
Executive
Summary
T
he risk of supply chain shocks has
never been more palpable than today,
following compounding crises from
the US-China trade war, the COVID-19
pandemic, and the war in Ukraine. Global
Value Chains (GVCs), once viewed as a panacea
for economic development, are coming under
increased scrutiny in different parts of the
world. Increasingly complex, cross-border
production processes are exposing companies
and populations to a multitude of risks. At the
same time, it is becoming clearer that greater
integration into GVCs does not inevitably lead
to improved economic outcomes or shared
prosperity, especially for developing countries.
This report examines how India can better
integrate into GVCs while building resilience.
The report draws on a survey of executives from
200 domestic and foreign companies in India
across six sectors: aerospace and defence;
automotive and auto-components; capital
goods; electronic systems design and
manufacturing (ESDM); new and renewable
energy; and pharmaceuticals and medical
devices. The report presents insights into
these companies’ perceptions of GVCs
amidst immense disruptions from different
causes. It describes the firms’ views on
India’s trade policy, and summarises the key
challenges facing these enterprises in scaling
production and integrating into GVCs in India.
The report makes recommendations for
policy intervention in eight areas, and outlines
strategies for incorporating resilience into India’s
GVC linkages.
Key Survey Findings
1
Despite risks and uncertainties,
enterprises consider further integration
into GVCs as being critical for India. The
current geopolitical climate, especially
as companies search for alternatives to
China, offers a window of opportunity
for India to attract GVCs looking for
new production homes. A particularly
salient opportunity is if India can offer an
environment that is conducive to resilience.
1Executive Summary1
7
2
Geopolitical developments inform investment decisions
in India. Companies are currently reconsidering their value
chains and the distribution of their production between
countries. India can leverage this opportunity but must get
the fundamentals right.
3
India’s attractiveness vis-à-vis other countries depends on
its ability to improve the business climate. Investments in
human capital development and infrastructure will be critical
and will have co-benefits with other domestic priorities.
4
Industry’s dependence on both imports and exports is high,
but firms say relatively less attention has been paid to import
challenges, which they view as crucial.
5
Companies agree that India must re-evaluate its trade
policies. Trade policy is essential to successful GVC
integration, and India’s recent trade agreements with the
United Arab Emirates (UAE) and Australia are a testament
to the country’s willingness to enhance and deepen
trade relationships despite its aversion to the Regional
Comprehensive Economic Partnership (RCEP). Companies
agree that India should prioritise a trade deal with
the United States.
6
Enterprises continue to face domestic policy challenges.
The most difficult obstacles to efforts in scaling up production
in India include complex tax policies and procedures, the
quality of infrastructure, and uncertainty in trade policy.
1Executive Summary1
8
7
Government support is needed to facilitate GVC integration.
The most significant constraints to firms in participating in
GVCs are meeting quality standards, lack of institutional
support, and inadequate information. The government has a
clear role in supporting enterprises in these areas.
8
Companies have clear domestic policy priorities in India.
Companies say that in the medium term, India should
focus on enhancing its digital and physical infrastructure,
strengthening financial and investment regulations, and
ensuring clarity and certainty around trade policies and
tariff rules.
If managed well, greater integration into

GVCs can support economic growth,
increase productivity, and facilitate the
transfer of knowledge and technology. This
report outlines strategies for India to create
stronger GVC linkages and ensure that in
its efforts to better amalgamate into GVCs,
it is building resilience.
1Executive Summary1
9
I.
Introduction
J.S. Deepak
A
dvanced manufacturing techniques,
including computer-aided design,
allow product design codification
and the standardisation of
components. This, in turn, allows companies to
standardise production and assembly. As such,
the product’s design, production, and assembly
can be carried out separately in different parts
of the world, with pieces of the same product
being manufactured or assembled in different
countries. This has led to the emergence of
global value chains (GVCs), where lead firms,
mostly multinational corporations (MNCs) from
advanced economies, maximise competitiveness
by outsourcing production and assembly to the
lowest-cost destinations.
Since GVCs account for a growing proportion
of global value addition, countries that are part
of a key GVC can benefit from job and wealth
creation. At the same time, countries wanting
to be part of GVCs need skilled human
resources and a supportive policy and business
environment. Moreover, since items move
between different countries during the
production process, sometimes multiple times,
trade plays an essential role in manufacturing
products in GVCs. Zero tariffs and trade
facilitation measures, in particular, are critical to
saving cost and time.
Since production and assembly are done based

on standardised templates, it becomes possible
for lead MNCs to substitute firms manufacturing
components or doing assembly-line production
to enhance competitiveness. This diversification
of supply helps build reliable supply chains.
Furthermore, the critical role and reliability of
every country that is part of the global value
chain also makes it essential for MNCs to diversify
supply chains across countries to make them
more resilient to shocks such as the COVID-19
pandemic, climate-related disasters, or conflict.
Typically, the upper end of GVCs, which involves

research and development (R&D), design,
services, and marketing (that have intellectual
property rights embedded in them) are profit-
intensive; these components also tend to be
located in advanced economies. The lower parts
of the GVCs, meanwhile, tend to be labour-
intensive and have lower value addition, and are
typically located in developing countries. GVCs
1Introduction1
give manufacturing a fillip, bring in infrastructure,

develop skills, and increase exports, thereby
11
serving as catalysts for increasing local incomes and economic
growth. However, GVC integration does not automatically result in
direct economic benefits such as job creation and improved living
standards, and therefore policy has an important role to play in
ensuring the best possible outcomes.
What are Global Value Chains?
A global value chain is the gamut of activities that are divided among
different workers in separate countries and geographies to bring a
product through the entire production process. Decisions about where
to locate various aspects of these processes—through restructuring and
relocation—are based on the comparative advantage of a particular
country.
The emergence of GVCs in production has been enabled by trade

liberalisation, innovations in ICTs and their adoption, as well as political
developments.1 Today, an estimated 70 percent of trade occurs through
GVCs, with components of final products moving across borders multiple
times before ending up with the end-user.2
An OECD report gives the example of the production process of a

smartphone. A phone assembled in China could be deigned in the
United States, coded in France, and use silicone chips manufactured
in Singapore. All the countries involved in this process will gain some
value from it and benefit when the final product is exported.3
1
Pol Antràs. “Conceptual Aspects of Global Value Chains.” The World Bank Economic Review, 2020.
https://scholar.harvard.edu/files/antras/files/conceptual_aspects_gvcs.pdf
1Introduction1
2
OECD. “Global Value Chains and Trade.” Oecd.org, 2016. https://www.oecd.org/trade/topics/global-
value-chains-and-trade/ .
3
OECD, “The Trade Policy Implications of Global Value Chains”
12
Trade, one of the engines of growth, has not been fully leveraged
in India in the last decade. Merchandise exports that create jobs
in manufacturing have remained flat, at around US$ 300 billion
annually.4 It is noteworthy that India’s trade as a percentage of
GDP has plummeted from 56 percent in 2011 to 40 percent in
2019—the last year before the COVID-19 pandemic. While India’s
trade has picked up in 2021, mainly due to increased demand
and the price effect, sustaining current levels will be challenging.
Indeed, trade recovery is likely to slow down further as a result of
the ongoing crisis in Ukraine.
India has not been part of significant trade blocs and is thus a
latecomer to the GVC space. One of the main reasons for this is
that GVCs thrive across geographies that liberalise trade with
each other by reducing tariff and non-tariff barriers, actively
implementing trade facilitation measures, and protecting
investments. These measures are usually part of Free Trade
Agreements (FTAs).5 Today, the ‘spaghetti bowl’ of FTAs includes
about 500 arrangements with linkages and overlaps. Latin
American countries, the European Union, ASEAN, Japan, and even
China, aggressive traders, have many plurilateral and mega
regional trade arrangements that facilitate GVCs.
To be sure, being a massive market with a young population

makes India attractive. However, it needs to quickly catch up
on specific essential criteria like tariffs, logistics, and trade and
investment facilitation measures that allow GVCs to function
seamlessly. India has also recently decided to pursue preferential
trade agreements aggressively, which will support integration
into GVCs.
4
TrendEconomy. “India | Imports and Exports | World | ALL COMMODITIES | Value (US$) | 2009 - 2020,”
2021. https://trendeconomy.com/data/h2/India/TOTAL
5
The ‘spaghetti bowl’ effect was a term coined by Jagdish Bhagwati to explain the tangle created
by cross-cutting trade and tariff rules created by the signing of multiple Free Trade Agreements. He
1Introduction1
argues that it creates confusion in trading rules. (Jagdish Bhagwati, “US Trade Policy:
The Infatuation with FTAs”, Discussion Paper Series No. 726 Columbia University (April 1995)
Jagdish Bhagwati. “US Trade Policy: The Infatuation with FT As,” 1995. https://core.ac.uk/download/
pdf/161436448.pdf
13
The US-China trade war has already created further opportunities
for India to become part of major GVCs. MNCs headquartered in
the United States (US) previously established bases in China to
leverage their infrastructure, skills, and low factor cost to
manufacture at globally competitive rates and export to the US.
Thus, a large proportion of global production of steel, consumer
durables, textiles and clothing, shoes, and electronics became
concentrated in China. However, with the trade war resulting in
the imposition of tariffs on imports from China, many MNCs are
looking for alternative locations for manufacturing these goods
and reducing their risks by diversifying their sources of supply.
The COVID-19 pandemic has caused many bottlenecks in

logistics networks, export restrictions on raw materials,
intermediates, and supplies, playing havoc on the efficient
functioning of GVCs. This has accentuated the need for both
reshoring and diversification of sources of supply to make GVCs
function efficiently with just-in-time availability of parts and
components. Consequently, there is an urgent move globally to
look for alternative destinations for manufacturing to increase the
resilience of GVCs.
This is an opportunity that India cannot afford to ignore. A

package of incentives, responsive governance, improved
infrastructure and logistics, reduced tariffs, and seamless
facilitation of imports and exports needs to be urgently unveiled.
Some aspects like an ambitious Production Linked Incentive
(PLI) scheme are already in place, while others still need to
be implemented.
The US-China trade war and the COVID-19 pandemic exposed

severe vulnerabilities in production networks of many important
products and have made it imperative to reconfigure supply
chains. The leaders of the Quad—i.e., Australia, India, Japan, and
the United States—at their virtual summit in March 2021 underlined
1Introduction1
14
the need for reliable and resilient supply chains.6 The call came
as part of efforts to stimulate manufacturing as the COVID-19
pandemic broke out. It also resonated in various leaders’
statements, especially in the US and India. At the time of writing
this report, the omicron-led wave appears to be receding, but
there is continuing uncertainty posed by the threat of future
variants. Meanwhile, the Ukraine crisis has created new challenges
for supply chains and international trade, severely impacting the
energy and food sectors.7 Building more agile and robust supply
chains has taken on new urgency as a matter of security as well.
This report is based on a survey of 200 domestic and foreign firms

doing business in India on their experiences, expectations, and
priorities related to GVCs in India. It seeks to address the following
questions:
i) How are geopolitical developments affecting firms’ perceptions

of GVCs, their relative importance, and the attractiveness of India
vis-à-vis other countries?
ii) What constraints are firms in India facing in integrating into GVCs
and what are their imperatives?
iii) What kind of ecosystem does India need to establish to create
better GVC linkages, and what policies should the country
prioritise to achieve this?
The rest of the report is structured as follows. Section 2 outlines

the methodology used in the report, and Section 3 highlights key
findings from the survey and discusses implications for Indian
policymaking. The last section consolidates findings from the
survey into eight policy intervention areas for India and nine
strategies for building resilience into India’s GVC linkages.
- JS Deepak is Distinguished Fellow at ORF, and former Ambassador of India to the WTO.
1Introduction1
6
The White House. “Quad Leaders’ Joint Statement: ‘the Spirit of the Quad.’” The White House, 2021.
https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/12/quad-leaders-joint-
statement-the-spirit-of-the-quad/
7
World Bank. “The Impact of the War in Ukraine on Global Trade and Investment,” 2022. https://
openknowledge.worldbank.org/handle/10986/37359
15
II.
Methodology
T
he methodology for this report
involved identifying key stakeholders
across six critical industrial sectors
and seeking their views, through a
structured questionnaire, on what needs to be
done to integrate India into GVCs.
To identify potential survey respondents, the

authors shortlisted ten industries based on
the “champion sectors” defined by India’s
Department of Promotion of Industry and Internal
Trade, Ministry of Commerce.8 The authors
further narrowed the focus of the sample
to six industries of particular interest for
this research: 1) aerospace and defence;
2) automotive and auto-components;
3) capital goods; 4) electronic systems design
and manufacturing (ESDM); 5) new and
renewable energy; and 6) pharmaceuticals
8
“List of 27 Champion Sectors Manufacturing Sectors
under DPIIT,” n.d. https://dpiit.gov.in/sites/default/files/
List_of_Champion_Sectors_08July2020.pdf
and medical devices. The sample of companies
included in the study include both foreign
multinational companies (MNCs) as well as
domestic firms, all of which have a presence in
India. The sample of companies were identified
by a third-party survey company. The companies
were selected based on their sector, their
presence in India, and their potential or current
participation in GVCs.
The survey respondents were selected based

on their working knowledge of the selected
companies’ strategic and international direction
and constraints. Therefore, respondents
comprised a range of individuals, including
those in-charge of public policy, external affairs,
government relations, global policy, international
business, corporate affairs, and corporate
strategy, as well as country heads and
chief economists.
The survey questionnaire was developed

by researchers at the Observer Research
Foundation, Delhi, and the Observer Research
Foundation America in Washington, DC. It
was written in English and comprised 27
multiple-choice and open-ended questions.
The questionnaire was converted into a digital
questionnaire by a third-party data collection
firm. A pilot of ten interviews was undertaken
to ensure the quality of the questionnaire.
The survey was administered over the phone

to 196 respondents, and over email to four. The
researchers received 200 complete responses
that met all inclusion criteria—i.e., the sector,
1Methodology1
designation of the respondent, and presence

in India. Figure 1 shows the details of the survey
respondents.
17
Figure 1: Survey Respondents
16, 8%
16, 8% 39, 19.5% 38, 19%
47, 24%
Respondents, Respondents,
40, 20% by Industry by Firm Size
(Number, %) (Number, %)
36, 18%
37, 19% 38, 19% 87, 43.5%
Aerospace Automotive Capital goods Less than 500 500 - 4,999

and defence and auto-
components
Electronic New and Pharmaceuticals 5,000 - 19,999 20,000 +

system renewable and medical
design and energy devices
manufacturing
7, 4%
33, 17%
65, 32.5% 64, 32%

57, 29%
Respondents, Respondents,
by Revenue by Firm Age
(Number, %) (Number, %)
103, 52%
70, 35%
Less than $100 Million $100 Million to Less than 5 years 5 - 20 Years
$500 Million
1Methodology1
$500 Million or more 21 - 50 Years More than 50 Years
18
19
1Methodology1
III.
Results and
Discussion
T
his section outlines the key findings
from the enterprise survey and is centred
around three key areas: i) global value
chains in the context of current geopolitical
uncertainties; ii) India’s trade policy and the priorities
and preferences of firms; and iii) the domestic policy
environment, which looks at the core constraints
that firms face in scaling up in India and integrating
into GVCs.
The percentages in the figures presented in the

succeeding pages will not always add up to an exact
100% because of rounding-off.
A. Global Value Chains Amidst Uncertainties
Enterprises across the globe are experiencing

new uncertainties resulting from a number of global
events: disruptions caused by the COVID-19 pandemic,
including those on supply chains, which result
in shortages of essential goods; political
backlash against globalisation; technological
innovations; tensions in the international trade
system and between global powers; increasing
risks associated with cyber-attacks; climate
related disasters; and conflict. Even as complex
production systems that cross multiple borders
provide potential benefits in cost and efficiency,
increasingly, they are exposing firms to
climate, technological, political, cyber, and
health-related shocks.9 The rising costs of daily
goods caused by supply chain disruptions are
compounded by fears of job loss caused by
globalisation and the rapid uptake of labour-
saving technologies.
Together, these crises are forcing countries,

firms, and people to reconsider the meaning of
‘resilience’.
For India, the central questions are related

to how the country can leverage current
developments to integrate into GVCs; how
it can create resilience in its value chains
to reduce the human, economic, and
ecological impacts of shocks; and how it
can ensure that GVC integration translates
into better incomes and the well-being of
the population.
1Results and Discussion1
9
Susan Lund, James Manyika, Jonathan Woetzel, Edward
Barriball, Mekala Krishnan, Knut Alicke, Michael Birshan,
Katy George, Sven Smit, Daniel Swan, and Kyle Hutzler
“Risk, Resilience, and Rebalancing in Global Value
Chains.” McKinsey, 2020. https://www.mckinsey.com/~/
media/McKinsey/Business%20Functions/Operations/
Our%20Insights/Risk%20resilience%20and%20
rebalancing%20in%20global%20value%20chains/Risk-
resilience-and-rebalancing-in-global-value-chains-
full-report-vH.pdf
21
Creating Resilience in GVCs
Disruptions in global supply chains heightened when the trade war
between the US and China erupted around 2017. In 2020, as the COVID-19
pandemic broke out, the risks in overdependence on a single source
country for essential intermediary products became clearer. Supply
disruptions due to border closures forced countries to exert efforts to
build more resilient supply chains and production networks. Policymakers
started looking for both immediate and long-term solutions to reduce
disruptions in the production of essential commodities and traded goods.
The principle of ‘supply chain resilience’ refers to the ability of a supply

chain to respond to sudden shocks and resist them, reducing the time
required to recover in the event of a disruption in supply. For firms,
according to Reinsch et al., this can be achieved in three ways: i) increasing
the number of suppliers; ii) utilising different risk assessments; and iii)
diversifying transportation methods.10 The key across these strategies is
diversification: having multiple sources of goods that are essential to the
completion of a product’s value chain, and ensuring multiple channels
are available to access those products. This can become untenable in the
long term, however, as the cost of maintaining alternate routes increases,
especially in sectors where products have a shorter shelf life and there is
no guarantee that alternative sources will be used. To temper this cost,
some companies resort to reshoring—to decrease reliance on foreign
manufacturing—and nearshoring, i.e., bringing the supply chain closer
to the home country to reduce the gap between the final product and
the consumer market. However, complex value chains can also be
important for building resilience and reducing over-dependence on
certain suppliers.
India has natural advantages as a production and supply destination.

Its access to various trade routes by land and sea make it an ideal centre
point, as does its proximity to markets in Asia. It needs to build on this
edge by creating an enabling market for domestic manufacturers
and attracting investments from lead firms.11
10
William Alan Reinsch, and Emily Benson. “The Manufacturer’s Dilemma: Reshoring and Resiliency in
a Pandemic World.” CSIS, 2021. https://www.csis.org/analysis/manufacturers-dilemma-reshoring-
and-resiliency-pandemic-world
11
Peter Horvát, Colin Webb, and Norihiko Yamano. “Measuring Employment in Global Value Chains.”
Www.oecd-Ilibrary.org, 2020.https://www.oecd-ilibrary.org/science-and-technology/measuring-
employment-in-global-value-chains_00f7d7db-en.
22
To better understand how firms in India view these trends and their
impact on investment decisions, the authors asked respondents
about their perceptions of the importance of GVC integration. The
questions were framed in the context of the COVID-19 pandemic.
Firms view GVC integration as critical. When asked how vital GVC
integration is for their firms, 87 percent of respondents replied that
it is very important; 10 percent answered somewhat important; and
3 percent said it is not important (see Figure 2). At present, India’s
total domestic value add for manufactured exports stands at
40.7 percent of gross exports of manufactured goods, in addition
to 30.5 percent contribution from indirect value addition from
intermediary sectors.12
Companies in different industries evaluate the importance of

GVC integration differently. A greater number of companies in the
capital goods and pharmaceutical and medical devices industries
consider GVC participation to be important. More than nine of every 10
respondents (95 percent) in the capital goods industry said it is very
important; 93 percent of respondents in the pharma and medical
devices industry answered in the same manner. Of the respondents
in the automotive and auto components industry, a lower 79
percent said integration is very important. In the same industry, a
notable 11 percent of respondents selected not important. Intuitively,
enterprises that produce final consumer products view GVC
integration as less critical than those that manufacture primary and
intermediate goods.
12
World Trade Organization, India Country Profile, WTO, Geneva, Nd. WTO. “WTO | India - Member
Information,” n.d. https://www.wto.org/english/thewto_e/countries_e/india_e.htm#:~:text=This%20
page%20gathers%20key%20information,GATT%20since%208%20July%201948.
https://www.wto.org/english/res_e/statis_e/miwi_e/countryprofiles_e.htm Accessed on 15 June
2022 WTO. “WTO | Global Value Chains — Trade in Value-Added and Global Value Chains: Statistical
Profiles,” n.d. https://www.wto.org/english/res_e/statis_e/miwi_e/countryprofiles_e.htm

13
Sandeep Soni, “Despite Being World’s Pharmacy, why India is Dependent on China for Builk Drugs,”
Financial Express, December 22, 2021,https://www.financialexpress.com/industry/sme/msme-
eodb-despite-being-worlds-pharmacy-why-indian-pharma-is-dependent-on-china-for-bulk-
drugs/2386143/ Sandeep Soni. “Despite Being World’s Pharmacy, Why Indian Pharma Is Dependent
on China for Bulk Drugs.” Financialexpress, 2021. https://www.financialexpress.com/industry/sme/
msme-eodb-despite-being-worlds-pharmacy-why-indian-pharma-is-dependent-on-china-
for-bulk-drugs/2386143/
23
The historical context could partly explain why a larger share of
companies in the capital goods and pharmaceutical industries,
than in automotive see GVC integration as important. First, the
auto industry in India is arguably already more integrated into
GVCs than the other industries. Second, at present, India is
overdependent on imports of Active Pharmaceutical Ingredients
(APIs) from China.13 The pharmaceutical industry needs to find
alternative sources of APIs to build resilience, especially amidst the
prolonged COVID-19 pandemic In capital goods, meanwhile, the
challenge is to keep up with newer technologies and producing
to scale at competitive rates, even as there is domestic
manufacturing. More broadly, India’s GVC manufacturing exports
are less diversified than average, with GVC integration greatest
in coke and petroleum, chemicals, primary and fabricated metals,
and transport equipment.14
87 percent of the respondents

said GVC integration is “
very important for their firms.
14
Mitra, Sabyasachi, Abhijit Sen Gupta, and Atul Sanganeria, Drivers and Benefits of Enhancing
Participation in Global Value Chains: Lessons for India, Asian Development Bank South Asia, 2020
P. 13. Sabyasachi Mitra, Sen Gupta, and Atul Sanganeria. “DRIVERS and BENEFITS of ENHANCING
PARTICIPATION in GLOBAL VALUE CHAINS LESSONS for INDIA.” ADB South Asia, 2020. https://www.adb.
org/sites/default/files/publication/665781/sawp-79-enhancing-participation-gvcs-india.pdf
24
How important is value chain integration to your company?
Figure 2: Importance of Global value Chain Integration,

Responses by Industry (%)
Capital goods 95 5
Pharmaceuticals and 93 8
medical devices
Electronic system design

89 8 3
and manufacturing
New and 82 19
renewable energy
Aerospace and
81 18
defence
Automotive and
auto-components 79 8 11
All respondents 87 5 3
Share of respondents (%)
Very Important Somewhat Important Not Important

25
Figure 3: Importance of GVC Integration, Responses by Firm Size (%)
Less than 500 95 3 3

Firm size (Number of employees)
500 - 4,999 83 15 2
5,000 - 19,999 89 8 3
20,000 + 87 8 5
All respondents 87 10 3
An overwhelming majority of respondents (95 percent) from

companies with less than 500 employees, i.e. small firms, view
integration into GVCs as very important. They face particular
barriers, however, such as access to finance and human capital
resources, and the inability to both, protect their intellectual
property and technology, and meet standards requirements.15
The ability of MSMEs to integrate into GVCs is particularly salient for
India, as they employ more than 120 million people and
contribute 33 percent of manufacturing exports.16 Greater
integration into GVCs can also help MSMEs gain access to
new technologies and know-how.17
15
OECD, Interconnected Economies: Benefiting from Global Value Chains, OECD, Paris, 2013, P.12
“Interconnected Economies: Benefiting from Global Value Chains.” OECD. OECD, 2013. https://www.
oecd.org/mcm/C-MIN(2013)15-ENG.pdf
16
Confederation of Indian Industry, “Micro, Medium, and Small Scale Industry,” CII https://www.cii.
in/Sectors.aspx?enc=prvePUj2bdMtgTmvPwvisYH+5EnGjyGXO9hLECvTuNuXK6QP3tp4gPGuPr/
xpT2f CII. “Micro, Medium & Small Scale Industry,” n.d. https://www.cii.in/Sectors.
aspx?enc=prvePUj2bdMtgTmvPwvisYH+5EnGjyGXO9hLECvTuNuXK6QP3tp4gPGuPr/xpT2f
17
ADB, Integrating SMEs Into Global Value Chains: Challenges and Policy Actions in Asia, ADB, Manila,
2015. “Interconnected Economies: Benefiting from Global Value Chains.” OECD. OECD, 2013. https://
www.oecd.org/mcm/C-MIN(2013)15-ENG.pdf
26
The pandemic has laid bare some of the risks of highly
dependent, fractured production systems. For example, during
the first wave of the pandemic, countries were unable to
source critical components required to manufacture treatment
drugs, medical devices, and oxygen cylinders. Meanwhile, even
as the demand for personal computers and mobile phones
increased as the pandemic forced populations to shift their
daily activities online, production faced challenges due to
the global semiconductor crisis.18 Yet, research suggests that
GVCs remain the best way to reduce the risks of shocks. They
can, however, be better managed through the harmonisation
of quality standards to encourage faster substitution in the
event of failure of one source of supply. There is also a need to
stockpile essential commodities regionally, and to ensure global
equity in access to essential commodities.19
Post-pandemic, how urgent is GVC integration?
Overall, 89 percent of companies say that the pandemic has

shaped their perceptions of the importance of GVCs. A great
majority of the respondents from the largest companies
(97 percent) said that the pandemic has been critical in shaping
their views on GVCs. Of the respondents belonging to smaller
companies, 84 percent agreed with the statement.
18
Ayushi Kar, “Chip Shortage Hits Personal Computing Device Supply in India,” Business Line, May 8,
2021, https://www.thehindubusinessline.com/info-tech/chip-shortage-hits-personal-computing-
device-supply-in-india/article34511985.ece Ayushi Kar. “Chip Shortage Hits Personal Computing
Device Supply in India.” BusinessLine, 2021. https://www.thehindubusinessline.com/info-tech/chip-
shortage-hits-personal-computing-device-supply-in-india/article34511985.ece
19
OECD, Global Value Chains: Efficiency and Risk in the Context of Covid-19, OECD, Paris, 2021. ———.
“Global Value Chains: Efficiency and Risks in the Context of COVID-19.” OECD,2021. https://www.oecd.
org/coronavirus/policy-responses/global-value-chains-efficiency-and-risks-in-the-context-of-
covid-19-67c75fdc/
27
Moreover, a company’s experiences during the pandemic
helped shape their views on the urgency of GVC integration. For
example, among the companies in new and renewable energy,
95 percent of respondents said the pandemic has shaped
their perspective on the importance of GVCs, and 50 percent
of these companies said that integration into GVCs is very urgent
in the post-COVID-19 context. All 16 aerospace and defence
companies said that the pandemic altered their assessment of
the importance of GVCs, with 69 percent (11 companies) saying
integration is very urgent.
The urgency for greater amalgamation into GVCs in the context

of COVID-19 is greatest for firms in the pharmaceutical and
medical devices industry. Eight of every ten respondents
(80 percent) in the pharmaceutical and medical device industries
said their integration in GVCs was very urgent, compared to
57 percent of companies overall. This perspective of companies
in the pharmaceuticals and medical devices industry is
unsurprising, and is important given the size of the industry in
the Indian economy. India is the 12th largest exporter of medical
goods in the world by volume and accounts for 20 percent of
all exports of generic drugs.20 In 2020 as the pandemic broke out,
the sector suffered significant shocks owing to its dependence,
as noted briefly earlier, on countries such as China for APIs. The
sector became vulnerable when China blocked exports of these
products to prioritise domestic use.21
20
IBEF, “Indian Pharmaceutical Industry,” IBEF, https://www.ibef.org/industry/pharmaceutical-india.
aspx IBEF. “Pharma Industry in India: Pharma Sector Overview, Market Size, Analysis...| IBEF,” 2022.
https://www.ibef.org/industry/pharmaceutical-india
21
-- “Coronavirus Impact on India’s Pharma Sector,” The Economic Times, April, 14, 2020, https://
economictimes.indiatimes.com/markets/stocks/news/coronavirus-impact-on-indias-pharma-
sector/articleshow/75136862.cms?from=mdr The Economic Times. “Coronavirus Impact on India’s
Pharma Sector,” 2020. https://economictimes.indiatimes.com/markets/stocks/news/coronavirus-
impact-on-indias-pharma-sector/articleshow/75136862.cms?from=mdr
28
Figure 4: Post-Pandemic Urgency of GVC Participation, Responses
by Industry (%)
80
69
58 59
57
50 49
47
41 41
39
38
31
20
9
4
3 3 3
0 0
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ds
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Very Urgent Somewhat Urgent Not Urgent
Which geopolitical and geoeconomic development will most impact

foreign investment decisions in India in the medium-term?
Companies carefully watch global economic developments

to inform their investment decisions. One-third of the respondents
said that global macroeconomic conditions are most important
in determining their priorities for overseas investment.
This is followed by climate change, with one of every five
companies (21 percent) saying it is the most important factor
shaping their investment decisions in India. For another one-fifth

of companies (19 percent), domestic policy changes are most
important. (See Table 1)
29
Table 1: Developments Influencing Investment Decisions in India,
Responses by Industry (%)
Geopolitical
Global
Climate Techno- tensions Terrorism
macro- Domestic
Industry and energy logical and and Others
economic policies
transitions disruption military extremism
conditions
conflict
Aerospace
and 38 25 13 13 6 6 0
defence
Automotive
and auto- 23 13 30 23 11 0 0
components
Capital
goods 42 26 8 13 8 3 0
Electronic
system design
and 38 14 24 19 5 0 0
manufacturing
New and
renewable 14 27 18 18 18 5 0
energy
Pharmaceuticals
and 38 28 15 13 5 0 3
medical devices
All respondents 33 21 19 17 9 2 1
30
B. Trade Policy
Companies are dependent on both imports and exports.

The respondents’ perceptions of the importance of imports, and
that of exports, are nearly equal, despite relatively less attention
being paid to imports. Overall, 57 percent of companies
are somewhat dependent on imports, and 36 percent are
highly dependent.
Overall, 56 percent of firms are highly dependent on exports, and

40 percent are somewhat dependent.
Figure 5a. Dependence on Exports, by Firm Size (%)
8 5 8 5
37 54 67 67 56
55 41 33 26 40
Less than 500 500 - 4,999 5,000 - 19,999 20,000 + All respondents
Highly dependent Somewhat dependent Not dependent

31
Figure 5b. Dependence on Imports, by Firm Size (%)
3 11 3 8 8
39 52 72 69 57
58 37 25 23 36
Less than 500 500 - 4,999 5,000 - 19,999 20,000 + All respondents
Highly dependent Somewhat dependent Not dependent
How important is it for India to update its trade policy to enable

greater value chain integration?
Companies agree that the Indian government must prioritise

trade policies. A near-unanimous 99 percent of the respondents
said that trade policy changes are important for India’s
greater incorporation into GVCs. More than seven of every 10
respondents (75 percent) agreed that it is very important, while 25
percent said it is somewhat important.
Updating trade policies is most important for smaller firms.

Among companies with less than 500 employees, 87 percent said

updating trade policies is very important for India’s GVC
integration, compared to 74 percent of firms overall.
32
Figure 6: Importance of Upgrading India’s Trade Policies, Responses
by Industry (%)
93
72 71 74
69 68
65
32 31 32
29
26 25
0 2 3 1
0 0 0
vi nd
nt d
ds
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nc e
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ts
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s
oo
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nd
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Which three countries or groupings do you think India should

prioritise signing a free trade agreement with?
Enterprises say India should prioritise a trade agreement with

the U.S. Respondents were asked to select the countries or blocs
that India should prioritise signing a trade deal with. The US
stands out as a priority country for companies across industries,
while the RCEP appears to be less significant for firms in India.
More than one-third of aerospace and defence companies
would prioritise the US, followed by the UK. In automotive and

ESDM, the US and the EU are the most important. For firms in the
capital goods and new and renewable energy sectors, the US and
the UK are the favoured countries for a trade agreement; and for
enterprises in pharmaceuticals, the US, UK, and UAE.
33
Table 2: Preferred Partners for Trade Deals with India, Responses by
Industry (%)
Industry US China EU UK Australia Canada UAE RCEP
Aerospace and
defence 33 13 13 17 4 6 15 0
Automotive and
auto-components 27 9 14 13 12 8 12 5
Capital goods 25 14 9 23 8 4 15 2
Electronic system
design and 23 5 18 10 10 14 14 5
manufacturing
New and renewable

energy 27 6 11 17 14 11 14 2
Pharmaceuticals
and medical devices 24 12 9 19 7 8 19 2
All respondents 26 10 12 16 9 9 15 3
That the UK is a preferred partner over the EU is hardly surprising,

as the UK was India’s largest trade partner amongst all EU
members even before BREXIT. While industry resistance to RCEP
is not unexpected, the response to an agreement with China is
noteworthy. Perhaps predictably, enterprises in the automotive

and auto-components sector, as well as ESDM, remain mostly
skeptical of any agreement on that front. This is most likely because
these two sectors are in direct competition with their counterparts
34
in China. For their part, firms in the sectors of aerospace and
defence, pharmaceuticals and medical devices, and capital
goods show a tendency, albeit slightly, in favour of an
understanding with China while maintaining negative views
about RCEP. Of the respondents in the capital goods sector, for
instance, more respondents are in favour of an understanding
with China than with the EU, Australia, and Canada. These findings
merit further research, as these sectors are important for India’s
growth goals and manufacturing agenda.
India’s Trade with Select Partners (FY2021-22, in US$ Millions)
Partner Total Trade Trade Balance
United States 96,618 + 27,935
United Kingdom 14,446 + 2,615
EU 686,243 - 102,627
China 95,018 - 58,225
Source: Import – Export Data Bank, Ministry of Commerce, Government of India
Recognising the importance of the US as a trading partner for

India, this survey asked firms what they think the US needs to
do to facilitate greater investments in India. One-third
of the respondents said greater government-to-government
engagement is needed. One-fifth of the firms (21 percent) said
that the US should reconsider some of its positions in the WTO,
and 13 percent said that the US should ease domestic regulations to
facilitate greater investments into India.
35
Enterprises say the US needs to deepen its government-
to-government (G2G) engagement with India. For India
and the United States, G2G engagement is facilitated
through multiple platforms. The 2+2 dialogue, for one, is an
established forum for engagement between India’s ministries
of External Affairs and of Defence, and the US departments of
State, and of Defence. The Trade Policy Forum (TPF) also serves
as an important platform for trade policy. The most recent
meeting of the TPF took place in November of 2021,22 during
which the participating countries discussed various issues, from
bilateral trade to multilateral cooperation.23
C. Domestic Policy Environment
A country’s ability to attract foreign investments and create

stronger trade linkages depends not only on trade policies, but
on supportive domestic policies, and the institutional and human
capital environment.
The quality of infrastructure, for example, can strongly

determine costs and efficiency, and in turn, the country’s
attractiveness for investments. Equally important is the overall
business environment, labour laws, the quality of education
systems, and the ease and cost of compliance with international
standards and certification.
22
Office of the United States Trade Representative, Government of the United States https://ustr.gov/
about-us/policy-offices/press-office/press-releases/2021/november/joint-statement-united-
states-india-trade-policy-forum United States Trade Representative. “Joint Statement from the
United States - India Trade Policy Forum,” 2021. https://ustr.gov/about-us/policy-offices/press-
office/press-releases/2021/november/joint-statement-united-states-india-trade-policy-forum
23
Office of the United States Trade Representative, Government of the United States https://ustr.gov/
about-us/policy-offices/press-office/press-releases/2021/november/joint-statement-united-
states-india-trade-policy-forum United States Trade Representative. “Joint Statement from the
United States - India Trade Policy Forum”
36
How much do the following influence foreign investment decisions
in India?
Respondents were asked which factors are most important

for investment decisions in India. In their view, the most important
factor is the availability of raw materials, with 72 percent
of respondents grading this as very important. This is followed
by skilled workforce (70 percent) and the cost of production
(68 percent).
“
GVC can greatly raise productivity,
benefitting both the investors and
investee countries.
- Survey respondent
37
Figure 7: Factors Informing FDI Decisions in India (% of all Respondents)
Availability of raw 72 27 2
materials
Skilled workforce 70 28 3
Cost of Production 68 31 2
Quality of 68 31 2
infrastructure
57
Taxation rules and 68 30 3

policies
Regulatory uncertainty 63 36 2
Land acquisition 60 36 5
Labour issues 60 35 6
Investment protection 59 39 3
Access to capital 59 37 5
Uncertainty in trade 59 38 4
and tariff policy
Political and social risk 56 32 12
Bureaucratic and
administrative 55 43 3
procedures
Intellectual property 55 40 6
protection
Low tariff on inputs 52 46 3

Corruption 43 30 28
Very Important Important Not Important
38
How much of a constraint are the following for your company’s
ability to scale up in India?
In addition to investment decisions in a broad sense, the

survey asked companies about their own experiences in
production in India, especially the importance of various factors
in constraining their production capabilities and expansion in
the country.
The key constraints facing companies in scaling up in India

include tax policies, the quality of infrastructure, trade and tariff
policy uncertainty, and access to capital. More than half of
respondents (54 percent) said that tax policies were very much of
a constraint; 43 percent of companies called tax policies a
moderate constraint; and 3 percent said they are not a constraint.
Meanwhile, infrastructure issues have been a consistent

challenge for companies in India. More than half of the companies
(51 percent) said infrastructure quality was a major constraint.
The share of this response was higher among larger companies
at 54 percent, compared to 30 percent of the smallest companies.
Fifty-one percent of the respondents named trade policy

uncertainty as a major constraint, while 50 percent said access
to capital is a major constraint. Capital constraints were more
pronounced among smaller companies, with 53 percent of
companies with less than 500 employees identifying it as a major
constraint, compared with 39 percent of the largest companies.
39
Table 3: Key Constraints to Scaling Up (% of all Respondents)
Constraints to Scaling Up Very Much Moderate Not at All
Taxation rules and policies 54 43 3
Quality of infrastructure 51 44 6
Uncertainy in trade and tariff policy 51 43 7
Access to Capital 50 43 8
Availability of raw materials 49 47 5
Skilled workforce 47 47 7
High teriff on finished products 47 50 4
Intellectual property protection 46 49 5
Cost of production 46 48 7
High tariff on inputs 46 48 7
Labour issues 45 36 20
Beurocratic and administrative

procedures
45 48 7
Regulatory Uncertainty 42 52 7
Political and Social Risks 41 47 13
Investment Protection 40 54 6
Land and Acquisition 39 51 11

Corruption 33 39 29
40
Which challenges does your company face integrating into GVCs?
The survey asked the respondents to name the specific issues

they face in integrating into GVCs, drawing on their own experiences.
The biggest challenges companies face in integrating into GVCs

are meeting quality standards, lack of institutional support,
and inadequate information. Nearly half of the companies
(45 percent) said that meeting quality standards is a significant
problem for them. The fragmentation of standards drives up the
cost of production. As a joint study done by the Organisation for
Economic Cooperation and Development (OECD), the WTO, and
the United Nations Conference on Trade and Development
(UNCTAD) has found, firms that supply multiple markets may
have to duplicate production to conform with fragmented
standards or certification systems.24 The various components
of the quality assurance ecosystem—from standards to
certification—already constitute a fixed cost for producers.
The next biggest challenge identified by 41 percent of the

companies is the lack of institutional support. This could be in
terms of infrastructure, market access, and even production
subsidies. Indeed, a study done by the Indian Council for Research
on International Economic Relations (ICRIER) finds that while India
has a number of policies that support trade, there is a dearth
in those related to GVC integration.25 This implies that policies
may support day-to-day trade flows, imports and exports
through straightforward incentives. On the other hand, there is
a lack of policies that actively support GVC integration in terms
of creating a downward pressure on domestic production costs.
24
OECD, WTO, UNCTAD, “Implications Of Global Value Chains for Trade, Investment, Development And
Jobs” OECD, WTO, UNCTAD, 2013, Saint Petersburg.
25
Saon Ray, and Smita Miglani, “India’s GVC Integration: An Analysis of Upgrading Efforts and
Facilitation of Lead Firms.” ICRIER, Working Paper 386 (2020): 3. Saon Ray, and Smita Miglani. “India’s
GVC Integration: An Analysis of Upgrading Efforts and Facilitation of Lead Firms, Working Paper 386.”
ICRIER, 2020. https://icrier.org/pdf/Working_Paper_386.pdf
41
The third biggest challenge companies report facing is the
absence of adequate information. Four of every 10 respondents
(40 percent) said that the lack of information impedes their
integration into GVCs. After all, information regarding markets,
partners, EXIM rules, and even trade finance play an important
role for companies in creating partnerships and tapping into
value chains.
Firms of varying sizes face different issues integrating into

GVCs. Among the smallest companies, 55 percent said high
domestic tariffs was a major challenge; and 53 percent of
them identified their inability to meet quality standards.
Meanwhile, for the largest companies (those with 20,000 or more
employees), 46 percent said meeting quality standards was a
crucial constraint.
Table 4: Constraints to GVC Integration (% of all Respondents)
Challenges to GVC
Major Problem Minor Problem Not a Problem
integration
Inability to meet quality standards 45 41 14
Poor institutional support 41 42 18
Lack of information 40 48 13
Poor market access 39 45 17
Lack of access to capital 36 45 19

Inadequate business networks 35 48 18
High domestic tariffs 33 57 11
Low production capacity 31 50 20
42
For India to integrate better in global value chains, which of these will
you place as the highest priority?
The survey asked companies to name the policy areas that

India should prioritise in the medium term to build better
GVC linkages.
Companies say investments in digital and physical

infrastructure are most important for India to integrate into
GVCs. When the respondents were asked what India should
prioritise to better participate in GVCs, the following were
the top responses: 26 percent of the firms said digital and
physical infrastructure are most important; 22 percent
said India should strengthen its financial and investment
regulations; and 21 percent said it is the certainty and
clarity around international trade policies that should
be prioritised.
43
Figure 8: Policy Priorities for India, Responses by Industry (%)
Aerospace and 25 13 19 6 13 13 13
defence
Pharmaceuticals and 25 18 25 13 10 8 3
medicaldevices
New and renewable 23 23 23 9 5 9 5 5

energy
Electronic system
design and 16 32 14 11 16 8 3
manufacturing
Capital goods 32 26 18 8 5 3 33 3
Automotive and
auto-components 30 17 23 11 2 6 11
All respondents 26 22 21 10 8 7 5 21
Physical Streamlining of Certainty and

and digital financial and clarity in foreign
infrastructure investment regulations trade policy
Social and Availability of raw Availability of

political materials and talent and labour
stability intermediate goods
Competence of Lower domestic tariffs Others

small and medium
enterprises
44
What efforts by the government have improved GVC integration in
India the most?
Firms consider the ‘Make in India’ mission to be beneficial for

India’s integration into GVCs. While further policy changes are
needed to improve India’s participation in GVCs, respondents
were also asked about how they view the effectiveness of
existing government initiatives. One-third of respondents
(34 percent) said the ‘Make in India’ mission has helped India
integrate better into GVCs; 24 percent pointed to the
simplification of online licensing and bureaucratic procedures;
and 17 percent ranked the MEIS highest.
The value given to the different initiatives varies between

industries. For example, one-half of the firms from the aerospace
and defence sectors selected ‘Make in India’, compared to
the 34 percent overall proportion. Across the sectors, the
respondents belonging to the pharmaceuticals industry ranked
the simplification of online licensing and bureaucratic procedures
most important. Overall, RoDTEP was considered the least
important by the respondents across industries.
45
Figure 9: Effective Government Initiatives, Responses by Industry (%)
Aerospace and
50 25 6 6 13
defence
Capital goods 39 24 16 16 5
Electronic system
design and 35 30 16 14 5
manufacturing
Automotive and
auto-components 34 19 17 15 15
New and renewable

energy 27 18 9 32 14
Pharmaceuticals and
medical devices 25 28 18 20 10
All respondents
34 24 15 17 10
‘Make in India’ Simplification of online Production-Linked Incentive

licensing and bureaucratic Scheme
procedures
Merchandise Exports Remission of Duties

from India Scheme and Taxes on
Exported Products
46
Findings from the enterprise survey highlight several key points that
may be useful for Indian policymakers.
1. The respondents see integration into GVCs as important for

their firms despite disruptions, shocks, and backlash. The
pandemic has shaped these companies’ perceptions of
GVCs, and for the pharmaceutical and medical devices
industries, in particular, integration is an imperative.
2. Companies keep a close watch of geopolitical developments

to inform their investment decisions.
3. Companies are highly dependent on both imports and

exports, and policies to reduce costs and barriers to both
are needed to strengthen better GVC linkages.
4. There is a nearly unanimous view among the respondents

that India needs to make its trade policies more
consistent and stable to facilitate integration into GVCs.
This can be done through a predictable tariff regime,
and greater engagement in FTAs. Respondents say India
should focus its efforts on the United States.
5. Respondents say that the availability of raw materials and

skilled labour, the cost of production, and infrastructure are
the most crucial factors that inform FDI investment decisions
in India.
6. The biggest hurdles companies face in scaling up

production in India are taxation, infrastructure, and
uncertainty around trade policy.
7. The biggest challenges facing these firms in participating

in GVCs is the inability to meet quality standards, absence

of institutional support, and lack of information.
8. In the medium term, the respondents say, India should

focus on improving digital and physical infrastructure,
strengthening financial and investment regulations,
and ensuring clarity and certainty around trade policies.
47
IV.
Policy
Priorities
and Options
The Objectives for India
I
ndia stands to benefit from building
resilient linkages with global value chains.
Better integration can support economic
growth by raising productivity and facilitating
the transfer of knowledge and technology,
and in turn help increase incomes. The
following, therefore, should be India’s objectives:
i) enhancing India’s integration into GVCs;
ii) ensuring the resilience of its value chain
linkages; and iii) enhancing the social and
economic benefits of more robust
GVC participation.
Indeed, GVC integration is viewed as amongst

the most important drivers of economic
development, as it offers lower- and middle-
income countries opportunities to participate
in global markets by lowering the bar for
entry. This is because firms no longer need to
produce entire goods—and thereby require
comparative advantage across all areas of
production—but can specialise in specific
aspects of it. 26
While the benefits of integrating into GVCs

are clear, two issues emerge which can be
addressed with adequate policy response.
The first is that this model of production
intrinsically favours high-income countries,
where value is created and extracted, leaving
lower-income countries often trapped at the
lower value-add positions of the value
chain. Coordinated policy efforts to move
up the value chain can help resolve this.
Second, the rapid uptake of digital technologies
of the fourth industrial revolution are
undercutting the cost-competitiveness of
production in lower-income countries across
many industries. Re-skilling and up-skilling
the workforce is important to maintain
competitiveness.
When developing countries enter GVCs, they

often concentrate on the low-skilled and
low-value-added activities. They often find
it difficult to upgrade their activities due
to competition from others, and therefore they
derive limited benefits.27 Moreover, while many
1Policy Priorities and Options1
developing countries view GVCs as a much-
26
Ochard Baldwin. “Trade and Industrialisation after
Globalisation’s 2nd Unbundling: How Building and
Joining a Supply Chain Are Different and Why It Matters.”
NBER, 2011. https://www.nber.org/papers/w17716
27
Saon Ray, and Smita Miglani. “India’s GVC Integration:
An Analysis of Upgrading Efforts and Facilitation of Lead
Firms, Working Paper 386.” ICRIER, 2020. https://icrier.
org/pdf/Working_Paper_386.pdf.
49
needed pathway to job creation, research suggests that job
creationis not necessarily a result of GVC participation as
technological upgrade tends towards lower labour use and has
indeed been below-target in many developing countries.28,29
It is clear that participation in GVCs alone will not necessarily

lead to improved development outcomes, and policy choices in
India will shape the extent to which GVCs benefit society as a
whole. For example, it will be important for India to increase the
value-add in production, facilitate knowledge and technology
transfer, address market failures, and ensure that the
economic benefits are shared.30
GVCs create more and better jobs,

improve economic growth, and hence
reduce poverty.
“
- Survey respondent
28
Stefan Pahl, and Marcel peter Timmer. “Do Global Value Chains Enhance Economic Upgrading? A
Long View.” ResearchGate. Journal of Development Studies, 2019. https://www.researchgate.net/
publication/338192859_Do_Global_Value_Chains_Enhance_Economic_Upgrading_A_Long_
View
29
Dani Rodrik. “New Technologies, Global Value Chains, and the Developing Economies.” Pathways for
Prosperity Commission, 2018. https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/new_
technologies_global_value_chains_developing_economies.pdf
30
Daria Taglioni, and Deborah Winkler. Making Global Value Chains Work for Development. Washington,
DC: World Bank, 2016.https://openknowledge.worldbank.org/handle/10986/24426
50
Policy Priorities
Based on the findings of the survey, this section highlights eight

policy intervention areas and recommends policy options
for India.
From the perspective of companies, India should prioritise

the following policy domains: 1) upgrading digital and physical
infrastructure; 2) improving the business environment; and
3) facilitating trade (See Table 5).
Table 5: Policy Options for GVC Integration
Key Intervention Area Policy Options
Upgrading Infrastructure
1. Enhance ICT, broadband, and 5G connectivity.
Digital 2. Ensure clarity on data protection rules that may impact

infrastructure investment decisions for digital infrastructure.
3. Implement cross-border paperless trading.
1. Implement the National Logistics Policy.
Physical 2. Enhance both road and non-road inland transportation

infrastructure networks.
3. Address gaps in power supply and distribution.
Improving the Business Environment
1. Ensure clarity on dispute settlement in the post-Bilateral

Investment Treaty system.
Investment and 2. Regularise GST rates with import tariffs to equalise

financial regulations domestic costs and import costs.
3. Promote financial access by improving creditworthiness

assessments (especially for SMEs).
51
1. Set up a supportive contracting environment.
2. Implement legislation to protect Intellectual Property.
3. Provide support for regulation compliance

Institutional
support 4. Increase investments in research and development (R&D).
5. Update and implementation of Labour Rules
6. Giving more momentum to initiatives like Skill India
1. Develop a GVC integration action plan with an

inclusiveness framework.
Addressing
2. Improve access to digital technologies and establish
information gaps
secure feedback loops and information sharing for
technology-enabled sectors.
1. Simplify and streamline tax procedures and policies.

Tax policies
2. Remove barriers and disincentives for firm formalisation.
Facilitating Trade
1. Establish stable tariff rules.
2. Pursue further FTAs with partners.
Trade policy 3. Review the link between BITs and trade, i.e., trade policy
and investment policy.
4. Simplify and streamline border procedures.
1. Implement the Indian National Strategy on

Improving quality Standardisation to increase firms’ capacity to meet
international standards.
52
Strategies for Resilience
India must focus on building the resilience of its linkages to

GVCs to mitigate the impacts of future shocks. The following
points outline specific strategies for creating resilience.
1. Map supply chains for critical goods and identify

vulnerabilities.
As we have learned from the pandemic, India should identify
goods critical for public health and other sectors critical to
the country's economic security. India should carry out an
in-depth mapping of supply chains. Based on the supply
chain mapping, potential vulnerabilities should be identified,
stress tests carried out, and strategies articulated for shoring
up supply of the identified critical goods.
2. Ensure redundancies (stockpiles and diversified sources)

for critical goods.
Based on the identification of critical goods, the
government should ensure there are emergency
stockpiles, and support firms in building diversified supply
chains through an enabling investment environment
and stable tariff structures. The government should also
facilitate the uptake of digital technologies and tools
that can support firms in identifying and responding to potential
supply shocks.31
3. Foster a stable regulatory environment.32

Creating resilience in India’s linkages to GVCs
requires investors and MNCs to take a long-term view
of engagement with/in India. As such, policy and
regulatory certainty in the medium- and longer-term
should be a key priority rather than an overemphasis on

short-term incentive schemes for attracting GVCs.
31
—. “Global Value Chains: Efficiency and Risks in the Context of COVID-19.” OECD, 2021. https://
www.oecd.org/coronavirus/policy-responses/global-value-chains-efficiency-and-risks-in-the-
context-of-covid-19-67c75fdc/
32
OECD,“Global Value Chains: Efficiency and Risks in the Context of COVID-19.”2020
53
4. Promote best practices through government procurement.
Resilience at the firm-level is of critical importance
for resilience throughout the system. The government
should leverage public procurement to incentivise
companies to adopt best practices by including
sustainable practices as a criteria for participation in
government projects.
5. Invest in public-private partnerships and promote

transparency and collaboration.
Robust partnerships between firms and the government
are needed to create resilience in India’s GVC linkages. The
government should regularly seek inputs from the private
sector. For instance, an Indian tech company now
provides an ‘Early Warning Solution’33 for supply chain
resilience. Such models can be escalated to a PPP model.
6. Harmonise logistics and transportation.

Implementation of harmonised logistics and transportation
standards can help reduce bottlenecks and ease the
movement of goods.
7. Support MSMEs.
MSMEs make up the bulk of the Indian economy.
Vitalising them and giving them access to reliable credit
so that they are able to scale and secure themselves
against externalities is key. It is important therefore to
assist MSMEs in mitigating risks and coping with shocks.
Ensure access to finance and encourage and facilitate
digitisation and formalisation through programmes like
the Production Linked Incentive (PLI) scheme.34
33
Infosys. “Handle Disruptions with Supply Chain Early Warning Solution | Infosys,” n.d.
https://www.infosys.com/services/data-analytics/offerings/early-warning-solution.html
34
Invest India. “Production Linked Incentive (PLI) Schemes in India,” n.d. https://www.investindia.gov.
in/production-linked-incentives-schemes-india
54
8. Ensure policy coherence between industrial strategies and
other policy priorities.
Ensure that policies aimed at GVC integration complement
other policy priorities35 such as consumer protection, the
welfare of workers, the creation of decent jobs, competition,
gender equity, and green transitions.
9. Support the workforce and workers’ well-being.

India’s ability to move up the value chain will depend on
the capabilities of the workforce. Rather than focusing on
job-specific skilling initiatives, India should continue to
invest in quality education. Educational foundations can
help workers adapt to changes in a more flexible manner.
Where appropriate, vocational education can be utilised
to bolster capabilities in strategic areas. Facilitate the
formalisation of labour, and the expansion of access to
social protections to shield individuals and households
from income and other shocks.
35
Karl Aiginger, and Dani Rodrik. “Rebirth of Industrial Policy and an Agenda for the Twenty-
First Century.” ResearchGate. Journal of Industry Competition and Trade 20, 2020. https://www.
researchgate.net/publication/338431081_Rebirth_of_Industrial_Policy_and_an_Agenda_for_the_
Twenty-First_Century
55
V.
Conclusion
T
his report utilised an enterprise
survey of 200 domestic and foreign
companies in India to highlight the
constraints and opportunities for the
country’s integration into global value chains.
Opportunities exist for India to better integrate
into global markets and benefit from the
potential job creation, productivity, knowledge
transfer, and growth that can result from
greater integration. For India to do this, it is
imperative to exert concerted efforts and nurture
a strategic vision, backed by policy action.
This report outlined eight priority policy

intervention areas to help India better integrate
into GVCs. Under each of these eight priority
areas, the report articulated policy options
for India. The eight key intervention areas
include: i) digital infrastructure, ii) physical
infrastructure, iii) investment and financial
regulation, iv) trade policy, v) improving quality
standards, vi) improving institutional support,
vii) addressing information gaps, and
viii) tax policies.
India could benefit from greater GVC

integration if it focuses on resilience and
the broader social benefits of deeper GVC
linkages. In taking that opportunity and
designing strategic policy pathways, India will
not only be able to deepen its linkages in
GVCs but meet other imperatives such as
creating jobs, raising incomes, and facilitating
knowledge and technological transfer.
The opportunities and potential benefits of

strengthening India’s integration into GVCs are
immense, but the country must be strategic in
its efforts to maximise the benefits and ensure
resilience. The policy options outlined in this
report are based on the preferences of
enterprises and are meant to act as pointers
for policymakers keen on building greater and
resilient GVC linkages in India.
1Conclusion1
57
ANNEX
GVCs IN
INDIA: SURVEY
QUESTIONNAIRE
About the Survey
T
he survey aimed to study India’s
integration into global value
chains. As a part of this research, an
enterprise survey was conducted.
The survey aimed to collect data on the
main challenges companies in India are
facing with regard to integrating into
global value chains. The survey targeted
C suite executives of companies to better
understand the main challenges domestic
and foreign firms face in expanding value
chains in India.
ORIGINAL SURVEY:
Confidentiality Statement and Consent
Your answers will be kept anonymous, your name,

contact details, and other personal information
will remain with only the research team solely
for the purpose of quality audits. Your views will
be analyzed along with other business leaders.
Participation in the survey is voluntary, and you
may decline to answer any question(s) you wish
Do you consent to participate in the survey?

• Yes
• No
1. What is the name of your company?

____________________________________________
2. What is your Designation?

____________________________________________
3. Which industry does your company

operate in? (Select one)
a. Aerospace and defense
b. Automotive and auto-components
c. Capital Goods
d. Electronic system design and
manufacturing
1ANNEX: GVCs IN INDIA: SURVEY QUESTIONNAIRE1
e. New and renewable energy
f. Pharmaceuticals and medical devices
g. Others
4. How many employees does your company

have globally? (Select one)
a. Less than 500
b. 500-4,999
c. 5,000-19,999
d. 20,000 or more
59
5. What is the approximate total global annual revenue of your
company? (Select one)
a. Less than $100 million (INR 750 crores) QUOTA 50%
b. $100 million to $500 million (INR 750 – 3750 Crores)
c. $500 million or more
(INR 3750 Crores or more) QUOTA 50%
d. I don’t know
6. How many years has your company been operating

in India? (Select one)
a. Less than 5 years
b. 5 - 20 years
c. 21 - 50 years
d. More than 50 years
7. What stage of production do your company’s products

fall in? (Select all that apply)
a. Primary goods
b. Intermediary goods
c. Consumer / final goods
8. In how many countries does your company have

manufacturing facilities? (Select one)
a. 1 country
b. 2 - 10 countries
c. 11 - 50 countries
d. More than 50 countries
60
Section B: Significance of GVCs
In this section, we are interested in your views on global value chain

integration.
By global value chain, we mean the process by which firms locate
different stages of the production process in different countries.
By global value chain integration, we mean the nature and extent to
which India is incorporated into international production processes.
9. How important is value chain integration for your company?

a. Very important
b. Somewhat important
c. Not important
10. Has the Covid-19 pandemic influenced the way your company
views the importance of GVCs?
a. Yes
b. No
c. I don’t know
11. Post pandemic, in your view, how urgent is GVC integration for
your company?
a. Very Urgent
b. Somewhat Urgent
c. Not Urgent
12. How important is it for India to update its trade policy to enable
greater value chain integration?
a. Very important
b. Somewhat important
c. Not important
61
Section C: Geo-economic Developments
13. In your view, which geopolitical and geo-economic

developments will most impact foreign investment decisions
in India in the medium-term? (Select one)
a. Climate and energy transitions
b. Global macroeconomic conditions
c. Domestic policies
d. Geopolitical tensions and military conflict
e. Technological disruption
f. Terrorism and extremism
g. Other (please specify) ________________________________
14. Which three countries/groupings do you think India should

prioritize in signing a free-trade agreement? (Select 3)
a. United States
b. China
c. EU
d. UK
e. Australia
f. Canada
g. UAE
h. RCEP (Regional Comprehensive Economic Partnership)
15. In your opinion, which effort by the Indian government most

improved GVC integration in India? (Select one)
a. The Make in India Initiative
b. Simplification of online licensing and bureaucratic
procedures
c. Production Led Incentives Scheme
d. MEIS (Merchandise Exports from India Scheme)
e. RoDTEP (Remission of Duties and Taxes on
Exported Products)
f. Other (please specify) ________________________________
62
16. In your view, which US policy would most promote American
investments in India? (Select one)
a. Ease US domestic regulations
b. Reassess US positions on global trade at the WTO
c. Prioritize G2G (Government to Government) engagement
(e.g. defense, energy)
d. Reassessing the Generalized System of Preferences
e. Special 301
f. US subsidies for their domestic industry
g. New semiconductor policy
h. Other (please specify) ________________________________
17. Rank in order of importance the new international instrument

most likely to impact your business
(Rank 1-5 with 5 being most important)
a. GDPR (General Data Protection Regulation)
b. Border adjustment mechanisms
c. OECD BEPS (Organization for Economic Co-operation
and Development and Domestic tax base erosion and
profit shifting)
d. Digital equalization levies
e. WTO Moratorium on Customs Duties on E-Commerce
f. International tariff policy
18. Which technology is going to impact your business most?

Rank in order of importance.
(Rank 1-5 with 5 being most important)
a. 5G
b. Blockchains
c. Cryptocurrencies
d. 3 D printing
e. Nuclear energy
19. What are the risks you foresee for supply chain diversification
as it relates to technology? Rank in order of importance.
(Rank 1-5 with 5 being most important).
a. Foreign intervention
b. Monopolization
c. Overproduction/ supply
d. Trade protectionism
e. Over dependence on foreign suppliers
63
Section D: GVC Integration Intensity
20. To what extent is your company’s revenue in India dependent

on exports?
a. Highly dependent
b. Somewhat dependent
c. Not dependent
21. How dependent is your company on imports to India?

a. Highly dependent
b. Somewhat dependent
c. Not dependent
22. In general, how easy is it for your company to engage in

international trade? Both imports and Exports. (Select one)
a. Very Easy
b. Easy
c. Difficult
d. Very Difficult
23. Roughly how many companies do you supply to? (Select one)
a. Less than 10
b. 10-15
c. 16-20
d. More than 20
E. Sales to final consumers only
24. Which countries do your trade partners hail from?

(Select all applicable)
· USA · East Africa

· Japan · North or Central Africa
· Australia · Southern Africa
· South Korea · West Africa
· Vietnam · SAARC
· Thailand · Russia
· Indonesia · India
· China · Other - please specify
· Middle East/ West Asia ____________________
64
Section E: Domestic Barriers
25. In your assessment, how important are the following in

influencing foreign investment decisions in India?
(Very important, important, not important)
Very Important Not

Important important
a. Regulatory uncertainty 1 2 3
b. Political and social risk 1 2 3
c. Labor issues 1 2 3
d. Land acquisition 1 2 3
e. Skilled workforce 1 2 3
f. Taxation rules and policies 1 2 3
g. Quality of infrastructure 1 2 3
h. Uncertainty in trade and 1 2 3
tariff policy
i. Intellectual property protection 1 2 3
j. Investment protection 1 2 3
k. Corruption 1 2 3
l. Access to capital 1 2 3
m. Cost of Production 1 2 3
n. Availability of raw materials 1 2 3
o. Bureaucratic and 1 2 3
administrative procedures
p. Low tariff on inputs 1 2 3
65
26. To what extent are the following constraints for your
company’s ability to scale up in India?
(Very much, moderately, not at all)
Very Moderately Not

Much at All
a. Regulatory uncertainty 1 2 3
b. Political and social risk 1 2 3
c. Labor issues 1 2 3
d. Land acquisition 1 2 3
e. Skilled workforce 1 2 3
f. Taxation rules and policies 1 2 3
g. Quality of infrastructure 1 2 3
h. Uncertainty in trade and 1 2 3
tariff policy
i. Intellectual property protection 1 2 3
j. Investment protection 1 2 3
k. Corruption 1 2 3
l. Access to capital 1 2 3
m. Cost of production 1 2 3
n. Availability of raw materials 1 2 3
o. Bureaucratic and 1 2 3
administrative procedures
p. High tariff on inputs 1 2 3
q. High tariff on final products 1 2 3
27. To what extent are the following challenges for your company
in integrating into GVCs?
(Major Problem, Minor Problem, not a Problem).
Major Minor Not a

Problem Problem Problem
a. Inadequate business networks 1 2 3

b. Lack of access to capital 1 2 3
c. Poor institutional support 1 2 3
d. Poor market access 1 2 3
e. Lack of information 1 2 3
f. Inability to meet quality 1 2 3
standards
g. Low production capacity 1 2 3
h. High domestic tariffs 1 2 3
66
28. For India to integrate better in global value chains, which of
the following do you think should be prioritized? (Select one)
a. Certainty and clarity in foreign trade policy
b. Streamlining of financial and investment regulations
c. India’s physical and digital infrastructure
d. Availability of talent and labor
e. Availability of raw materials and intermediate goods
f. Social and political stability
g. Competence of small and medium enterprises
h. Low domestic tariffs
i. Others?
29. Do you have any additional comments you would like to share?
(Open Ended Question)
Interviewer to fill in
30. Respondent Name : ___________________________________
31. Contact Number : ____________________________________
Thank you for taking the time to complete this survey, we appreciate
your inputs.
67
About the
Authors
Jhanvi Tripathi is Associate Fellow with ORF’s

Geoeconomics Studies Programme. Her
research interests include international
trade policy issues, broadly, digital trade,
gender and trade, WTO reform, and standards.
She also has a keen interest in conflict resolution
and negotiation.
Terri B. Chapman is Program Manager for

Economic Development at Observer Research
Foundation America in Washington DC.
Rakesh Kumar Sinha obtained his PGDCA (Post
Graduation Diploma in Computer Application)
from CMC, Delhi Centre and CIC (certificate
in Computing) from IGNOU, Delhi Centre. He is
a Graduate of Statistics from Jodhpur
University, Rajasthan.
1About the Authors1
69
1Executive Summary1
Observer Research Foundation Observer Research Foundation America,

20, Rouse Avenue Institutional Area 1100 17th St. NW, Suite 501,
New Delhi - 110 002, INDIA Washington DC 20036 USA
+91-11-35332000 Fax: +91-11-35332005 www.orfamerica.org
[email protected]
www.orfonline.org
72

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Building Resilient

Terri Chapman, Jhanvi Tripathi, and Rakesh Kumar Sinha

Attribution: Terri B. Chapman, Jhanvi Tripathi, and Rakesh

The Observer Research Foundation

ORF provides non-partisan, independent analyses and inputs on

The Observer Research Foundation America

The Observer Research Foundation America (ORF America)

Design and layout: Rahil Miya Shaikh

Results and Discussion 20

Policy Priorities and Options 48

Annex: GVCs in India: Survey 58

About the Authors 68

Key Survey Findings

If managed well, greater integration into

Since production and assembly are done based

Typically, the upper end of GVCs, which involves

give manufacturing a fillip, bring in infrastructure,

What are Global Value Chains?

The emergence of GVCs in production has been enabled by trade

An OECD report gives the example of the production process of a

To be sure, being a massive market with a young population

The COVID-19 pandemic has caused many bottlenecks in

This is an opportunity that India cannot afford to ignore. A

The US-China trade war and the COVID-19 pandemic exposed

This report is based on a survey of 200 domestic and foreign firms

i) How are geopolitical developments affecting firms’ perceptions

The rest of the report is structured as follows. Section 2 outlines

To identify potential survey respondents, the

The survey respondents were selected based

The survey questionnaire was developed

The survey was administered over the phone

designation of the respondent, and presence

37, 19% 38, 19% 87, 43.5%

Aerospace Automotive Capital goods Less than 500 500 - 4,999

Electronic New and Pharmaceuticals 5,000 - 19,999 20,000 +

65, 32.5% 64, 32%

$500 Million or more 21 - 50 Years More than 50 Years

The percentages in the figures presented in the

A. Global Value Chains Amidst Uncertainties

Enterprises across the globe are experiencing

Together, these crises are forcing countries,

For India, the central questions are related

The principle of ‘supply chain resilience’ refers to the ability of a supply

India has natural advantages as a production and supply destination.

and attracting investments from lead firms.11

Companies in different industries evaluate the importance of

Profiles,” n.d. https://www.wto.org/english/res_e/statis_e/miwi_e/countryprofiles_e.htm

87 percent of the respondents

Figure 2: Importance of Global value Chain Integration,

Electronic system design

Share of respondents (%)

Very Important Somewhat Important Not Important

Less than 500 95 3 3

Share of respondents (%)

Very Important Somewhat Important Not Important

An overwhelming majority of respondents (95 percent) from

Post-pandemic, how urgent is GVC integration?

Overall, 89 percent of companies say that the pandemic has

1Results and Discussion1

The urgency for greater amalgamation into GVCs in the context