Assemble in India

Assemble in India

This article deals with ‘Assemble in India.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .

Introduction

  • Economic Survey (2020) points towards the fact that, in just the five year period 2001- 2006, labour-intensive exports enabled China to create 70 million jobs for workers with just primary education.
  • But now, firms are looking for alternatives because
    1. US–China trade war : US has placed large tariffs on products manufactured in China.
    2. Increase in wages in China.

Side Note : Network Product

  • In modern production lines, entire production is not done at single place. Different components are made at different places and then integrated at some third place to make final product. Such final product is known as Network Product.
  • Eg : iPhone => it’s screen is made in South Korea, processor is made in Taiwan , Camera in Japan and designed in California (USA) but assembly of all components is done in China .

Wild Geese Flying Model

  • The pattern of entry, rise, survival, and relative decline of countries in the export market for Network Products follows the “wild- geese flying model”
  • This process started with Japan which later moved to South Korea , then Taiwan and China and so on.
    1. Japanese Companies (like Sony) first started to assemble Cameras ,TVs, Walkman etc. . When labour costs started to rise, they shifted their manufacturing to South Korea .
    2. Then South Korean Companies like Samsung and LG grew in export of Network Products . After some time, due to cost issues, they outsourced their manufacturing to China and Taiwan.
  • Hence, Network Goods assembly will continue to move from more advanced countries to less advanced countries. (for image, CLICK HERE)
  • Economic Survey is of the view that while Japan is in declining stage, most countries including China have reached the inflection point, India is at right stage to enter this and take place of China in assembly of Network Products thus providing us sufficient opportunity to grab.
Assemble in India

Why India should focus on Network Products and Assemble in India ?

  • MNCs are moving away from China due to trade war between China and US along with rising wages in China. Hence, India should grab the opportunity to shift large chunk of Assembly Lines from China to India .
  • Network Products accounted for nearly 30 per cent of world exports in 2018. Although India has lot of potential, India lags behind in export of Network Products. In 2018, Network Products exports accounted for 10% in India’s export basket, while these products account for about 50% of the total national exports of China, Japan and Korea
  • Economic Survey (2020) suggests that by integrating “Assemble in India for the world” into Make in India, India can raise its export market share to about 3.5% by 2025 and 6% by 2030. In the process, India would create about 4 crore well-paid jobs by 2025 and about 8 crore by 2030.

Reforms required

  • To attract MNCs to Assemble in India , India needs to
    1. Reform Taxation laws
    2. Reform Labour Laws
    3. Skill training of workers and middle level supervisors.
    4. Invest heavily in infrastructure and create world class roads, railways and ports .
    5. Sign large number of Free Trade Agreements so that India becomes part of  Global Value Chains
  • While the short to medium term objective is the large scale expansion of assembly activities by making use of imported parts & components, long term objective should be giving a boost to domestic production of parts & components (and create global giants like Samsung developed in Korea and Xiaomi, Huawei etc. developed in China).

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