Recent years have highlighted the global headwinds against China’s increasingly aggressive moves in the Indo-Pacific region. Vulnerabilities associated with an overdependence on the country for several critical goods, including electronics, have exacerbated prevailing anti-China sentiments. This has provided the impetus for diversifying electronics supply chains, an opportunity India is well positioned to leverage. This brief assesses India’s existing policy framework, which can enable its integration into electronics global value chains.
Amid increasing globalisation, recent years have witnessed significant shifts in the way global producers and traders interact. As firms look to capitalise on factor endowments and competitiveness, global production and trade networks have evolved to structure around global value chains (GVCs), wherein the different stages of the production process are fragmented globally. Nearly three-fourths of current international trade is dominated by intermediate (raw materials, parts and components, or services for businesses) and capital goods that firms utilise to produce final products.
However, since 2011, the pace of GVC expansion has slowed, as evidenced by the decreasing global import intensity of production. The trade in intermediate goods against each dollar of global output has reduced, indicating the declining use of imported inputs in domestic manufacturing. This is largely on account of structural factors, including rising digitilisation, growing servicification of manufacturing, and rising wages in major outsourcing destinations in Asia.
Recent years have further clouded the prospects of GVC expansion as growing trade tensions between the US and China, which is a key hub for many GVCs, have raised concerns about production outsourcing strategies. China’s GVC centrality has grown substantially in recent years, as the country is a source and a destination of value addition. With the principal production networks in the electronics industry having shifted away from the US and South Korea, and gravitated towards China and its territories (Taiwan and Hong Kong), the latter have emerged as the primary buyers and suppliers of electronic products and components. In 2020, China, Hong Kong, and Taiwan manufactured and assembled approximately 70% of the world’s electronics products; and Taiwanese companies, such as Pegatron, Foxconn, Wistron, and New Kinpo, drove almost three-fourths of the global electronics manufacturing services (EMS) market, with Foxconn alone accounting for more than 50 percent of global EMS revenue.
As such, the vulnerabilities emerging from the economic dependence on China have influenced policymakers around the world to deliberate on reconfiguring or relocating existing GVCs. This sentiment was reaffirmed amid the disruptions caused by the Covid-19 pandemic. For instance, pandemic-induced disruptions had significant impacts on global electronics GVCs as China is the main manufacturing hub for key electronics products and components.
Given the overreliance of many critical manufacturing GVCs on Chinese inputs and the adverse impact of Chinese factory closures during the pandemic, the global focus is now on identifying vulnerabilities, reducing GVC concentration, and diversifying supply chains. India is well-positioned to leverage this opportunity, particularly in electronics GVCs, due to a supportive domestic policy environment and a favourable geopolitical climate. This brief assesses India’s current participation in electronics GVCs and appraises its existing policy framework that can enhance the country’s integration into electronics GVCs.
The report can be accessed by clicking here
The article has been authored by Yamini Jindal.