The Union Budget of 2021-2022 has introduced many schemes. In this blog, I examine these policies in terms of horizontal, vertical, or GVC oriented. GVC oriented policies are those “industrial policies that leverage international supply chain linkages or dynamics to improve a country’s role in global or regional value chains” (Gereffi and Sturgeon, 2013). Gereffi and Sturgeon (2013) present a typology of industrial policies in emerging countries with three components: first, horizontal policies which affect the entire national economy. Second, vertical industrial policies that are targeted at particular sectors or industries, and finally, GVC oriented policies. While the first two policies are traditional policies, the third is aimed at improving a country’s position in GVCs and includes possibilities of upgrading , as well as improving the links across different segments of the value chain.
The GVC literature suggests that the determinants of GVC integration include trade policy, logistics and trade facilitation, regulation of business services, investment, business taxation, industrial development, conformity to international standards, and the wider business environment fostering entrepreneurship (World Bank).
Indian industrial policy can be categorised in terms of horizontal, vertical, or GVC oriented. Some examples of horizontal policies are the enactment of ‘Goods and Services Tax’ or GST in 2017, the ‘Make in India’ scheme in 2014 to encourage in-house manufacturing; ‘Skill India’ 2015 campaign to undertake large-scale training of the workforce, and ‘Digital India’ 2015 scheme to incentivise digitalisation of economic transactions and record keeping in the economy. Some policies aimed at all sectors have been in the areas of logistics sector reforms, setting up of the ‘Indian trade portal’, and ‘Investor facilitation cell’ and the Insolvency and the Bankruptcy Code, 2016. Earlier pro-industrial policy measures like the 2011 National Manufacturing Policy and even the Make in India initiative aimed at attracting MNCs to set up production and design facilities through measures like further sectoral de-licensing, building of industrial corridors, and facilitation of greater government–business cooperation (especially through the Investor Facilitation Centre and the Invest India initiative) have become crucial for firm development. Also, through the Sagarmala 2015 and Bharatmala 2017 schemes, logistics costs were sought to be reduced.
This budget announced that the Western Dedicated Freight Corridor (DFC) and Eastern DFC will be commissioned by June 2022. These will be instrumental in bringing down the logistics costs further, and enable ‘Make in India’.
In order to boost skilling, the National Apprenticeship Promotion Scheme, launched in 2016, is to be amended to enhance apprenticeship opportunities for youth. The National Apprenticeship Training Scheme (NATS) will be realigned to provide post-education apprenticeship and training of graduates and diploma holders in engineering. Over Rs. 3,000 crore has been earmarked in the budget for this purpose.
In sector specific or vertical policies for sectors including textiles, past policies include the Technology Upgradation Scheme (TUFS), the Scheme for Integrated Textile Parks, etc. For the textile sector, the 2021 budget announced Mega Investment Textiles Parks (MITRA) in addition to the Production Linked Incentive (PLI) scheme, “to create infrastructure with plug and play facilities to enable create global champions in exports.” Seven Textile Parks are to be established over three years.
The GVC oriented policies announced in the recent budget include corrections to the inverted duty structure for several raw materials (e.g. on naphtha to 2.5%). In addition, 80 exemptions which were outdated have been eliminated. It was also announced a revised customs duty structure will be put in place, following a review of 400 exemptions, later in the year.
The modalities of the National Research Foundation, announced in the Budget speech of 2019, have been worked out, and the outlay is Rs. 50,000 crore over 5 years. This is to “improve the overall research ecosystem of the country with focus on identified national-priority thrust areas.”
The PLI scheme announced last year has identified 13 sectors for which the budget has committed Rs. 1.97 lakh crore over 5 years, starting FY 2021-22. In her speech, the Finance Minister said, “’For a USD 5 trillion economy, our manufacturing sector has to grow’ in double digits on a sustained basis. Our manufacturing companies need to become an integral part of global supply chains, possess core competence and cutting-edge technology.” This seems to indicate GVC oriented policies are being ushered into the country. Whether these policies will translate into greater GVC integration for the country remains to be seen.
References
Gereffi, G., and Sturgeon, T. 2013. Global value chain-oriented industrial policy: the role of emerging economies, in Elms, D.K., and Low, P. (eds.) Global value chains in a changing world. WTO, Fung Global Institute and Temasek foundation for Trade and Negotiations.
Giuliani, E., Pietrobelli, C., and Rabellotti, R. 2005. Upgrading in global value chains: lessons from Latin America clusters. World Development, 33(4):549-573.
Kaplinsky, R., and Readman, J. 2005. Globalisation and Upgrading: What can (and cannot) be Learnt from International Trade Statistics in the Wood Furniture Sector? Industrial and Corporate Change, 14 (4): 679–703.
Navas-Aleman, L. 2011. The impact of operating in multiple value chains for upgrading: the case of Brazilian furniture and footwear industries. World Development, 39(8):1386-1397.
Ray, S., and Miglani, S. 2020. India’s GVC integration: an analysis of upgrading efforts and facilitation of lead firms, ICRIER working paper 386. New Delhi. Link: http://icrier.org/pdf/Working_Paper_386.pdf
Schmitz, H. 2004. Local enterprises in the global economy. Edward Elgar Publishing.