Assemble in India

Assemble in India

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


Introduction

  • Economic Survey (2020) points towards the fact that in just the five years 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: The US has placed significant tariffs on products manufactured in China. 
    2. Increase in wages in China. 
    3. Companies have recognized the strategic vulnerability due to all supply chains concentrated in China. 

Side Note: Network Product

  • In modern production lines, the entire production is not done at a single place. Instead, different components are made at different locations and then integrated in some third place to make the final product. Such a final product is known as Network Product.
  • Take the example of the iPhone.
Assemble in India

Wild Geese Flying Model

  • The pattern of entry, rise, survival, and the 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, Taiwan and China and so on. 
    1. Japanese Companies (like Sony) first started to assemble Cameras, TVs, Walkman etc. When labour costs rose, they shifted their manufacturing to South Korea. 
    2. Then South Korean Companies like Samsung and LG grew in the 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. (CLICK HERE)
  • Economic Survey believes that while Japan is in a declining stage, most countries, including China, have reached the inflexion point. India is at the right stage to take the place of China in the assembly of Network Products, thus providing us sufficient opportunity to grab. 
Wild Geese Flying Model

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

  • MNCs are moving away from China due to the trade war between China and US, along with rising wages in China. Hence, India should grab the opportunity to shift a 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 much potential, India lags in exporting Network Products. In 2018, Network Products exports accounted for 10% of India’s export basket, while these products accounted for about 50% of China, Japan, and Korea’s total national exports.
  • 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 nearly 4 crore well-paid jobs by 2025 and about 8 crores 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 mid-level supervisors.
    4. Invest heavily in infrastructure and create world-class roads, railways and ports.
    5. Sign a 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, the 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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