India’s G20 presidency is a major opportunity to promote inclusive and human-centric approach of development through economic globalization and bolstering of global value chains (GVCs)
On December 1, when India assumed the mantle of G20 Presidency, Prime Minister Narendra Modi as G20 Chair outline India’s vision through a very powerful theme – “One Earth, One Family, One Future”. Under this overarching theme, India’s G20 agenda will be inclusive, ambitious, action-oriented, and decisive. PM Modi also emphasized that the priorities under India’s G20 Presidency will be shaped in consultation with not just the G20 partners, but also the fellowtravelers in the global South, whose voice often goes unheard. He also underlined the need to catalyze a fundamental mindset shift to benefit humanity as a whole. The message is clear that India’s G20 Presidency would try to promote inclusiveness, togetherness and, above all, a people-centric approach of world development.
Inclusivity and human-centric approach of development are important in the context of economic globalization, particularly in the functioning of the global value chains (GVCs). Today, roughly 70% of the international trade is accounted by GVCs. International trade and foreign direct investment (FDI) are the main defining features and key drivers of GVCs. In recent years, GVCs have boosted productivity growth and structural transformation in many developing countries, by allowing them to specialize in certain activities and stages of production rather than waiting for entire industries to develop. However, amongst the developing countries, only Southeast Asia has the relatively good average share of intra-regional GVC participation. The other regions such as Eastern and Southern Africa, Middle East and North Africa, Western and Central Africa and South Asia lag much behind with intra-regional GVC participation. Recent supply chain disruptions caused by pandemic have necessitated that the countries must work towards building inclusive and resilient GVCs. Greater investment and integration within the current network relationships as a strategy by companies for enhancing the resilience of GVCs.
The debate on the growing importance of GVCs in driving trade and investment is not new. At the G20 Brisbane Summit in November 2014, the G20 leaders, too, acknowledged that one important way for countries to connect to the global economy and develop is through GVCs.
Empowering Local Economy
The debate on the growing importance of GVCs in driving trade and investment is not new. At the G20 Brisbane Summit in November 2014, the G20 leaders, too, acknowledged that one important way for countries to connect to the global economy and develop is through GVCs. This is a clear recognition that GVCs provide opportunities to empower the local economy with sophisticated imported technology, know-how, and a richer skill set. The G20 leaders at the Brisbane Summit stated that “we need policies that take full advantage of global value chains and encourage greater participation and value addition by developing countries.” Inclusive growth and the promotion of Small and Medium Enterprises (SMEs) were two key priorities for Turkey’s 2015 G20 presidency as well.
For GVCs to operate seamlessly, the policy makers must create a conducive environment for attracting foreign direct investment (FDI), help domestic firms internationalize, and facilitate the interactions between multinational corporations (MNCs) and domestic firms. There are three key players in GVCs: MNCs, domestic firms, and policy makers. All three have to work in tandem to support each other. While MNCs take the lead through investment and technology, policy makers’ role is to support with right set of domestic policy measures along with helping domestic firms to integrate into the production network.
Global SME Network
For GVCs to be made inclusive, it is important to remove the constraints in the way of participation of SMEs from developing and low-income countries in global/regional production network. The underlying assumption is that most firms across sectors in low-income economies are SMEs. They face a less supportive domestic business operating environment and weaker institutions, which results in higher fixed costs and challenges to compete in international market.
GVCs are the consequence of advances in information and communication technology and logistics, more open markets for trade and investment, and complementary policy frameworks that are appropriate for a country’s stage of development. A key finding is that GVCs do not respond to piecemeal approaches to policy change. A “whole of the value chain” approach is needed. Some of these policies are horizontal in nature such as:
- Good infrastructure and connectivity
- A business-friendly environment
- Flexible labour markets
- Public investments in education and skills, and
- Focus on quality and standard infrastructure n A range of other policies that improve supply chain capacity.
Under India’s G20 Presidency, the Business 20 (B20) engagement group has prioritized inclusive GVCs as one of the important subjects to deliberate upon with an aim to draw the attention of G20 leaders.
Other policy initiatives are more targeted, such as:
- Removal of trade and investment restrictions,
- Local-content or export-performance requirements,
- Restrictions on foreign exchange
- Focus on improving service sector efficiency
Given the importance of GVCs and the changing dynamics of global trade, the growing inter-linkages between trade and investment, India’s G20 Presidency in 2023 should focus upon key sectors, key policy measures and new trade architecture, which could be the key catalyst for making GVCs more inclusive.
Focus Policy Areas
- To improve coordination among government players and ensure the involvement of the private sector.
- Opening borders and attracting investment can help jump-start entry in GVCs.
- Many diverse policy areas affect the success of GVCs. They include, among others, trade policy, logistics and trade facilitation, regulation of business services, investment, business taxation, innovation, industrial development, conformity to international standards, and the wider business environment fostering entrepreneurship.
- Finally, countries should identify measures that will complement their GVC strategies. These include a large swath of dimensions, from investment in education and vocational training to environment and urbanization, from ICT and infrastructure building to labor market mobility.
Three broad areas of recommendations, both at the national and multilateral level, are elaborated for consideration by the G20. These recommendations are well documented in the joint report of World Bank and OECD.
- To establish and suggest countries to have a trade and investment action plan for inclusiveness, defining clear and achievable objectives on trade and investment policy and identifying the necessary complementary domestic policy actions.
- To complement trade, investment, and domestic policy actions by providing the needed political leadership and support to enhanced collaboration across the public and private sectors and the establishment of global platforms for sharing best practices.
- To provide political support for the establishment of a realistic multiyear plan to expand and upgrade the statistical foundation necessary to share relevant information and data for increasing the capacity of low-income countries so that they can identify and implement policies that will contribute to stronger, more inclusive, and sustainable growth and development.
Deep Kapuria is the Chairman of The Hi-Tech Group of Companies comprising The Hi-Tech Gears, The Hi-Tech Engineering Systems, The Hi-Tech e-Soft and The Hi-Tech Robotic Systemz. The Group has manufacturing, R&D and engineering facilities in India, Canada and USA. He is Chairman of Global Innovation & Technology Alliance (GITA – a PP project with Dept. of Science & Tech. Gov. Of India) and Chairman of National Accreditation Board for Certification Bodies (NABCB), a body under Quality Council of India (QCI). He is Co-Chairman, CII National Committee on International Trade & Trade Policy and Past Co-Chair of Digital Economy and Industry 4.0 Task Force of B20, 2018 Argentina.
This articles was published in the special edition of 'INDIA & The WORLD' magazine on India's G20 Moment (Healing, Hope & Harmony) in January 2023.