Economic Survey calls for industrialization model with focus on global value chain

NEW DELHI: The Economic Survey on Thursday called for creating a new industrialisation model focused on deeper integration into global value chains, rather than existing models centred on import substitution.

The survey, tabled in Parliament, also said India needs to build “strategic resilience” through diversification and create depth of capabilities instead of seeking complete self-reliance.

“The next phase of industrialisation will require a calibrated shift from a model centred mainly on import substitution towards one focused on scale, competitiveness, innovation and deeper integration into GVCs (global value chains). Rather than seeking complete self-reliance in every segment, India needs to build strategic resilience through diversification and creating depth of capabilities,” said the survey.

This idea for finding deeply-focused pathways to economic resilience, based on finding crucial points in global value chains, comes at a time when nations are coming together towards breaking the stranglehold of a single nation in supply chains with compacts, such as the US-led Pax Silica to release the grip of China on artificial intelligence supply chains.

This requires an increase in private sector investment in R&D, technology adoption, skills, and quality systems, according to the CEA, and MSMEs will be crucial in this journey, evolving from micro-scale production toward deeper participation in formal and export-linked supply chains.

“The path to Viksit Bharat @2047 requires strategic resilience and continuous ascent within the GVCs. Sustained reforms across five pillars- Ease of Doing Business, R&D and innovation, Skilling, Infrastructure & Logistics, and Scaling up of MSMEs- will remain critical in positioning industry as a key engine of future growth,” said the survey.

This comes at a time when India has been patient and quietly working on its own economic transformation, chief economic adviser V. Anantha Nageswaran said in a precursor piece on the economic survey on Thursday.

The survey also noted that economic interdependence is no longer a pillar of mutual stability, but has instead become a vulnerability. “Advanced and emerging economies alike are therefore re-evaluating their exposure to concentrated supply chains, critical raw materials, and key technologies, often under the pretext of security,” said the survey.

The resurgence of economic statecraft, which is different from economic policy according to the survey, was due to factors such as the rise of ultra-nationalism rooted in claims of cultural superiority and an anti-immigrant stance, nations shying away from multilateral cooperation, and a lack of updated global norms to govern competition, investment, and subsidies across different development models.

The survey called for strategic resilience to be part of policy-making in areas such as removing quality controls and boosting innovation. In a landscape defined by strategic resilience, “the ability to innovate is no longer merely a driver of productivity; it has become the primary currency of national security and geopolitical leverage,” said the survey.

India needs to amp up its expenditure on research and development to foster innovation for strategic resilience, the survey said.

“India’s Gross Expenditure on R&D remains stagnant at ~0.64 per cent of GDP, significantly trailing the 2.5–5% range of innovation-led economies like the US, China, and Israel. The deficiency in India is not a lack of scientific talent but challenges in collaboration with the private sector and ‘translation’ at scale,” said the survey.

The survey also proposed that to secure a position of leverage in global supply chains, India must continue to work towards bridging the critical gap between academic discovery and industrial commercialisation.