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Economic Survey 2020 pitches for integrating 'Assemble in India' into 'Make in India'

On the much debated job creation issue, the Survey highlights that India can look at creating employment by emerging as a major hub for final assembly in a range of products.

January 31, 2020 / 05:12 PM IST

India can raise its export market share to about 3.5 percent by 2025 and 6 percent by 2030 by integrating 'Assemble in India' for the world into 'Make in India', according to the Economic Survey 2019-20.

"In the process, India would create about 4 crore well-paid jobs by 2025 and about 8 crore by 2030," the Survey said.

The chapter, titled 'Creating Jobs and Growth by Specializing to Exports in Network Products', said the incremental value added in the economy from the target level of exports of network products would make up about one-quarter of the increase required for making India a $5 trillion economy by 2025. The incremental value is expected to equal $248 billion in 2025.

To catch all live updates from the Economic Survey 2020, click here

The Survey said that even before the US-China trade war began, China's image as a low-cost location for final assembly of industrial products was rapidly changing due to labour shortages and increases in wages.

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"... As no other country can match China in the abundance of its labour, we must grab the space getting vacated in labour-intensive sectors. This chapter focuses on articulating a clear-headed strategy for the same," the Survey said.

The chapter analyses whether India's lacklustre export performance is caused by a lack of diversification in its export basket or is it because of a lack of specialisation by comparing India and China on these two dimensions.

The China-India gap in world market share is almost fully driven by the effect of specialisation, the Survey said.

"Overall, high diversification combined with low specialization implies that India is spreading its exports thinly over many products and partners, leading to its lacklustre performance compared to China," the chapter said.

The Survey said that if India wanted to become a major exporter, it should specialize more in the areas of its comparative advantage and achieve significant quantity expansion.

The chapter also highlights that while capital-intensive products account for a higher share in China’s export basket than that of India’s. Exports of capital-intensive products from China expanded since 2000 after the country recorded a major export expansion, for nearly two decades of traditional unskilled labour-intensive products whereas in contrast, India had not undergone a similar transition.

"In contrast to India, export growth of capital-intensive products from China has been driven by its high level of participation in GVCs (global value chains) within these industries," the Survey said.

The Survey said that India gained a competitive advantage in relatively low and middle income country markets driven by the nature of its specialization, but at the cost of losing the much bigger markets in richer countries .

"Though India can benefit significantly from utilising the potential opportunities from greater trade with high income markets, this requires a reorientation of our trade specialisation towards labour-intensive product lines," the Survey said.

The Survey also said that the above could be achieved by selective focus on  traditional labour-intensive sectors such as textiles, especially man-made fibres, and increased participation in GVCs.

On the much debated job creation issue, the Survey highlights that India can look at creating employment in two groups of industries,given our comparative advantage in labour-intensive activities and the imperative of creating employment for a growing labour force.

It says that India needs to tap into the unexploited export potential in the  traditional unskilled labour-intensive industries such as textiles, clothing, footwear and toys.

"The GVCs in these industries are controlled by “buyer driven” networks wherein the lead firms that are based in developed countries concentrate in higher value added activities such as design, branding and marketing. Physical production is carried out, through sub-contracting arrangements, by firms in developing countries," the Survey said.

It says that India also has huge potential to emerge as a major hub for final assembly in a range of products, referred to as network products.

"In general, these products are not produced from start to finish within a given country; instead, countries specialise in particular tasks or stages of the good’s production sequence," the Survey said.

As part of its prescription the Survey said that India could reap dividends by adopting policies aimed at strengthening its involvement in the export market for network products (NP).

"Given our vast manpower with relatively low skill, India’s current strength lies primarily in assembly of NP," the Survey said.

The Survey prescribes that policy measures should focus on reducing input tariffs, implementation of key factor market reforms, providing an enabling environment for the entry of lead firms into the country and reducing the service link costs.
Kamalika Ghosh
first published: Jan 31, 2020 05:07 pm

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