India’s Linkages into Global Value Chains: Role of Imported Services by B. Goldar, R. Banga, and K. Banga India Policy Forum July 11, 2017 Comments by Poonam Gupta World Bank
Trends and Literature on Services • Services are an increasingly important part of the global production and consumption baskets world wide, and in India (Eichengreen and Gupta, 2013, and 2011) • Growth in services is associated with improvement in development outcomes, employment generation, and productivity enhancement (Ghani et al; Dutt, Ravallion, and Murgai, 2016) • Services are an increasing part of the domestic as well as global value chains (Heuser and Mattoo, 2017). • A two way link that runs from manufacturing inputs to productivity of services (Dehejia and Panagariya, 2014 ); and from service inputs to the productivity of manufacturing (Mattoo et al, 2016).
Stylized Facts on GVC in Services • Increasing use of services in the production and exports of manufacturing • Intensity of use of services differs across industries and across countries — some industries use services more intensively; and countries use services more heavily. • Services that are more important in GVCs are: distribution, and business services
Key Theses of the Paper 1. Intensity of the use of imported services is correlated with the exportability of firms; and exportability is correlated with higher factor productivity. 2. Indian firms do not currently use imported services as intensively as other emerging countries. 3. In order to succeed as exporters, Indian manufacturing firms could use more imported services. 4. Role for policy — e.g. liberalize trade in services.
Comment 1: What matters more – use of services or use of imported services? Though it is not clearly established, but even if true that Indian firms use imported services less intensively, could it be because Indian service firms are productive. Possibly there is no advantage in importing these services. Within imported services what matters more – services imported through the presence of foreign providers (FDI) or imported directly? Why not include domestic services use and imported services use separately, rather than total services, imported services and their interaction. Despite better measurement, it is difficult to measure domestic vs foreign services value added (particularly the way derived in the paper using Prowess data).
Comment 2: Productivity or Exportability? If the interest is in enhancing TFP, why not directly analyze the correlates of TFP rather than the propensity to export What matters more is the TFP growth, whether the firms export or not is of secondary importance. The paper estimates the propensity to export, when it could have directly estimated TFP directly. (Make in India vs Make for India/for export arguments!)
Comment 3: Granularity in Policy discussion More granularity needed in policy recommendations Which services are more important — (Traditional vs Modern; or another set of categories) Which services need to be liberalized domestically, which require easing of FDI; and which require easing of direct imports?
To sum up The paper addresses an interesting and relevant issue. The narrative could be strengthened further by: Separately controlling for domestic and imported services inputs; Relating the use of these to TFP directly; Distinguishing across different kinds of services; Providing a more granular discussion of policy, and the policy discussion that is rooted more strongly in analysis.
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