India’s Linkages into Global Value Chains: The Role of Imported Services

Global trade patterns have changed considerably in the last three decades with the increasing international fragmentation of production. Global value chains (GVCs) drive international trade today, particularly in manufactures, in which services are also heavily involved. This paper examines the role of services in India’s linkages into GVCs. Using the Trade in Value Added/World Input– Output Database, the value added by foreign services in India’s manufactured exports is compared with that of other developing countries. This macro-level analysis is supplemented by a micro-level analysis of firm-(company)-level panel data for India for the period 2001–2015. We find: (a) services foreign value-added content of India’s manufactured exports is lower than that of other major developing countries, (b) imported services content in India’s exports is lower in more export-intensive industries, and (c) services input, particularly imported services, contributes significantly to the export intensity of Indian manufacturing firms. The paper stresses the need for more efficient provision of services to manufacturers to be achieved through further liberalizing identified services and boosting their exports through Mutual Recognition Agreements. Liberalizing services in India will improve their efficiency and make them globally competitive.