RBI governor urges Indian businesses to enhance play in global value chains3 min read . Updated: 16 Sep 2020, 01:41 PM IST
- Two-thirds of the world trade occurs through global value chains and today India is at the threshold of a big opportunity break into the global value chain
MUMBAI : The Reserve Bank of India (RBI) governor Shaktikanta Das, on Wednesday said that the Indian businesses must work on ways to be a part of the growing global value chain and urged them to invest in health, education to increase productivity to overcome the covid-induced economic crisis.
Impediments to the global value chain have been identified in the post-GFC (global financial crisis) period and regarding exports there has been a generalised increase in protectionism by trading partners amid weak global conditions, automation and several other factors, Das said.
Notwithstanding these impediments and the significant decline in trade intensity of the world GDP growth in the post GFC period, opportunities for expanding exports arising from vastly altered global landscape for trade increased, according to Das.
Two-thirds of the world trade occurs through global value chains and today India is at the threshold of a big opportunity break into the global value chain. This is one area where the government, authorities and the private sectors need to work together. This is how we should capitalise on the opportunities that the current crisis has opened up, especially this is how the new players can now get into the global value chain and use the opportunity. India's participation in the global value chain is quite low, the RBI governor explained.
"Some of the sectors that can show improvement in exports during the covid-19 period are drugs and pharmaceuticals. It is very heartening to know that some of our Indian players have become global suppliers of medicines and drugs. This is an area India has certain competitive advantages and that can be capitalised," he added.
"Other areas where India can become a part of the global value chain include IT, hardware, electric appliances, electronics and telecommunications and automobiles. This can also provide a cutting edge to India's export strategy with considerable scope for higher value additions," Das said, adding that, it is also important learn from global experiences and nurture those global trade agreements that go beyond traditional market access issues.
"Domestic policies need to focus on right mix of local and foreign content in exports to enhance participation in global value chains. Provisions relating to investment, competition, intellectual property rights and protection have a larger positive impact on global value chains. Global value chain trades need to be assiduously cultivated and integrated into the Indian ecosystem," said Das.
Das believes that the covid-19 pandemic will leave long lasting scars on the productivity of countries around the world. Referring to a recent World Bank assessment, Das said that the pandemic could entail adverse effects on productivity because of dislocation of labour, disruption of value chains and decline in innovations.
According to the survey, the covid-19 impact on productivity could be larger than 4% over a period of three years across the world.
In terms of capital, labour, energy, materials and services (CLEMS), the Indian economy grew at an average of 0.9% between 1980-81 and 2017-18, the World Bank survey shows.
Health is an equally important area, Das pointed out. A more comprehensive approach, similar to education, for the health sector may also be warranted. Better health infrastructure is also required by creation of new medical colleges, higher education like research institutes in the area of medical sciences, higher number of post graduate seats and setting up new colleges for paramedics and nursing, Das said.
The latest data suggests that some stabilization in the economic activities has happened in the second quarter of this fiscal.
"The revival of the economy will be gradual," said Das addressing a webinar organised by industry body FICCI on Wednesday.
"Emerging markets have bounced back. Cut in policy repo rates has eased key operations. Current G-sec borrowing rates are the lowest in last 10 years. Bond rates have softened. ₹3.2 trillion of bond issuance in corporate bond market has happened till 28 August," he added.
RBI will focus on five key areas to assist a revival of the economy in the coming few months, Das said.
"There are five key areas that I propose to focus on that I think will determine stability and step up India's growth in the medium term. First is Human capital with specific emphasis on education and health; second is productivity; exports which is leading to India's role in the global value chain; fourth tourism; food processing associated productivity areas," said Das.