India aims to enter the coveted ‘Factory Asia’ league, Chief Economic Advisor Raghuram Rajan has said.
Factory Asia refers to the model of regional production networks connecting different Asian economies, producing parts and components that are then assembled, with the final product shipped largely to advanced economies.
This phenomenon began with economic liberalisation in China in the late 1980s, aided by rapid development of production networks. The group comprises, among others, China, Japan, South Korea and Indonesia.
At the annual meeting of the Asian Development Bank, Rajan talked about four issues that will take India to Factory Asia.
First, the development of the Delhi-Mumbai Industrial Corridor (DMIC). Along this 1,483-km corridor will have six-lane highways, nine industrial townships, three ports and six airports.
The project will cost $90 billion and is being developed with assistance from Japan.
Second, according to Rajan, is about making India investor-friendly. “We are working on that,” he added.
Third and fourth, skill developmentand reforming the labour laws.
Protectionism
Rajan also expressed concern about protectionism in developed countries. As demand is low in these countries, they impose levies on imports.
“Protection should not be in the form of tax,” Rajan, a former Chief Economist of IMF, emphasised.
The background paper prepared for the session highlighted key facts about the global supply chain.
It states: “The importance of services trade is not yet appreciated. Intermediate services taken together account for 28 per cent of the world’s supply chain trade-flows (all intermediaries). The global pattern for intermediate industrial goods is more recognised than the pattern for intermediate services.
“Thus, there remain significant opportunities for economies such as India.”
Korea was aided by the growing importance of production networks. The same applies to Indonesia as well to a considerable extent.
“However, India has also shown impressive gains in manufacturing, which has focused more on serving its relatively large domestic market,” the report adds.
India has moved up in country ranking by ‘manufacturing nominal gross value-added’.
From 14th place in 1980, it moved up to 10thin 2011.