Anatomizing India’s Presence in Automotive Global Value Chains

Published date01 November 2022
Date01 November 2022
Subject MatterArticles
Anatomizing India’s
Presence in Automotive
Global Value Chains
Ankita Dash1 and Rupa Chanda2
Global value chains (GVCs) are the modus operandi of contemporary interna-
tional trade and production. However, the operational underpinnings of what
facilitates or hinders participation of firms in their respective sectoral GVCs
are surprisingly understudied. This article attempts to discover the potential
factors—ranging from regulatory, institutional, technological, trade-related and
financial to sectoral, and input-related elements—affecting GVC participation
of automotive firms in India. A firm-level field survey was undertaken to better
understand firms’ perceptions regarding these factors. The findings were ana-
lysed using principal component analysis (PCA) and partial least squares struc-
tural equation modelling (PLS-SEM), which revealed that certain policies such as
state government initiatives and the Competition Act, as well as trade facilitation
measures like standardisation of procedural requirements and trade agreements
were the most significant factors aiding firms’ participation in automotive GVCs,
while institutional, technological and input-related aspects were deterrents to
such participation. Our findings have important implications for policymaking in
the country for encouraging greater GVC participation of firms, especially small
and medium enterprises.
JEL Codes: F14, F6
Firm level analysis, global value chains participation, Indian automotive sector
1 Depar tment of Economics and Social Sciences, Indian Institute of Management Nagpur, VNIT
Campus, Nagpur, Maharashtra, India.
2 Department of Economics and Social Sciences, Indian Institute of Management Bangalore, Bangalore,
Karnataka, India.
Corresponding author:
Ankita Dash, Department of Economics and Social Sciences, Indian Institute of Management Nagpur,
VNIT Campus, Ambazari, Nagpur 440010, Maharashtra, India.
Foreign Trade Review
57(4) 429–451, 2022
© 2021 Indian Institute of
Foreign Trade
Reprints and permissions:
DOI: 10.1177/00157325211039909
430 Foreign Trade Review 57(4)
When John Donner wrote ‘No man is an island entire of itself’, he probably did
not mean it in the context of international trade, but the reality of today’s global
economic layout echoes these words perfectly. Global value chains (GVCs) are
the ideal manifestations of this scenario wherein nations have become (direct or
indirect) partners in international production, and services networks as global
trade, operations and investments have become increasingly intertwined. With the
rapid advent of globalisation and liberalisation by economies, firms have tran-
scended geographical boundaries by investing in productive assets globally to
harness the comparative advantages offered by different locations. This has
resulted in cross-border value chains of varying complexity.
It is increasingly acknowledged in the literature that enhanced GVC participa-
tion has several benefits, at the firm-level and at the national level. Functioning
from multiple locations benefits firms in terms of increased efficiency, lowered
costs and higher profits, while locating near markets results in faster production
turnaround times and better knowledge of market expectations. For developing
countries, GVCs can be instrumental for acquiring knowledge, gaining access to
sophisticated technology, innovation and adopting advanced business practices,
given the trade, investment and expertise flows that underpin GVCs (Humphrey
& Schmitz, 2002; Lall, 2000). GVCs are also known to ‘consolidate’ the growth
experience, thereby making non-linear catch-up feasible, as showcased in China.
Governments now also recognise the need to create policy frameworks that
facilitate GVC participation, given the potential benefits in terms of employment
generation and expansion of economic activity.
Despite prospective risks like North–South polarisation in value addition and
GVCs as conduits of shock transmission, value chains have assumed importance
with growing intermediate trade and imports progressively becoming a key com-
plement to local production and exports. With rise in intermediate trade, a range
of competitively priced foreign inputs has enabled both industrialised nations and
late bloomers like India and China to achieve higher productivity and output.
Table 1 presents a brief snapshot of the degree of domestic value added (DVA) 1
in gross exports (a proximate indicator of the level of GVC participation) for dif-
ferent countries. As seen, highly industrialised nations such as Japan, the USA,
Germany and Australia had very high shares of DVA in their gross exports (nearly
90%). Emerging economies (notably the Brazil, Russia, India, China and South
Africa—BRICS) have also shown a high degree of domestic value addition in
their gross exports, though the source of this high DVA remains diverse (primary,
secondary or tertiary sector) across nations.
Basic Research Question and Contribution of the Article
This is precisely the motivation for our research question in this article—to better
understand the drivers of India’s participation in sectoral value chains. India’s
focus since the turn of the century has been to increase the contribution of
manufacturing to GDP. While developing manufacturing intensity will require

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