The video discusses India's transition from being the world's back office to becoming a participant in higher-value global value chains. Historically, India has been a hub for labor-intensive operations like IT support, app development, and call center services. However, due to government incentives and a digitally savvy economy, India is now advancing towards providing more complex services such as research and development for Fortune 500 companies. Moreover, the country's burgeoning startups and innovation in software development have helped it ascend the global value chain ladder.

India's manufacturing sector is experiencing growth driven by production-linked incentives and foreign investments. Notably, the electronics industry is flourishing, making India the second-largest mobile phone producer. Companies like Samsung and Apple's main assembler, Foxconn, are expanding their manufacturing capabilities in India. Despite some challenges like infrastructure, India's digital transformation and its growing domestic market are major attractions for multinational corporations (MNCs) looking to invest.

Key takeaways from the video:

Please remember to turn on the CC button to view the subtitles.

Key Vocabularies and Common Phrases:

1. multinational [ˌmʌltɪˈnæʃənl] - (noun / adjective) - A company operating in multiple countries. - Synonyms: (international, global, transnational)

For years, multinationals have been setting up labour intensive operations here in India.

2. geopolitics [ˌdʒiːoʊˈpɒlɪtɪks] - (noun) - The influence of factors like geography on international politics and relations. - Synonyms: (international relations, global politics, world politics)

Given the geopolitics around this, given the domestic push around PLI oriented incentives, also the increasing domestic consumption, I think the forces are now converging.

3. incentive [ɪnˈsɛntɪv] - (noun) - Something that motivates or encourages someone to do something. - Synonyms: (motivation, stimulus, inducement)

However, India's position on the global value chain is shifting due to government incentives and a digitally savvy economy.

4. carrot and stick [ˈkærət ənd stɪk] - (noun phrase) - A motivational approach using a combination of rewards and penalties. - Synonyms: (reward and punishment, incentives, motivation strategy)

Adit tells me that the rising attractiveness of the indian market can also be likened to the government's carrot and stick approach to enhance India's manufacturing capabilities.

5. tariffs [ˈtærɪfs] - (noun) - Taxes imposed by a government on imported goods. - Synonyms: (duty, tax, levy)

The stick, on the other hand, could have to do with the imposition of very high tariffs for the import of products.

6. interlinked [ˌɪntərˈlɪŋkt] - (adjective) - Connected or linked closely together. - Synonyms: (connected, interdependent, intertwined)

In today's interlinked world, these activities often involve multiple countries across several regions, which makes a global value chain.

7. digital savvy [ˈdɪdʒɪtəl ˈsævi] - (adjective) - Having a good understanding of and ability to use digital technology. - Synonyms: (technologically competent, tech-savvy, knowledgeable about technology)

However, India's position on the global value chain is shifting due to government incentives and a digitally savvy economy.

8. competitiveness [kəmˈpɛtətɪvnəs] - (noun) - The ability of a company, country, or product to compete effectively in the market. - Synonyms: (competitiveness, rivalry, competition)

Rajat Dawan, India's managing partner from global consulting firm McKinsey, tells me that overnight success should not be expected. It takes decades to really become globally competitive in many of these value chains.

9. captive center [ˈkæptɪv ˈsɛntər] - (noun) - A part of a company that handles specific in-house operations for the entire organization globally. - Synonyms: (in-house department, subsidiary, affiliated division)

The creation of global captive centers, also known as global capability centers, are part of a wider trend by MNC's in India, says Rajat.

10. leapfrog [ˈliːpfɒɡ] - (verb) - To jump over or advance beyond others quickly. - Synonyms: (surpass, overtake, vault over)

We could complain about the lack of landlines in India, but what it did was it allows us to leapfrog as now to be one of the top countries in the world with a mobile phone.

India is moving beyond call centers and IT support but can it work?

If China was the world's factory, then India would be the world's back office. For years, multinationals have been setting up labour intensive operations here in India, think services like it support mobile app development or call centre services. But despite being one of the fastest growing economies in the world, India's position on the global value chain remained weak.

When we look at global value chains two and a half decades ago, all of it was focused on shared services, back office accounting, grunge work that could be cheaply done because we have a skilled, educated population. But then slowly, businesses started realizing that, hang on, we can actually do a lot more. We can set up high end research and development. Many everyday products, such as cars and smartphones, have several stages of development, from its design sourcing of raw materials to the assembly and distribution. In today's interlinked world, these activities often involve multiple countries across several regions, which makes a global value chain.

In fact, nearly 70% of international trade today involves global value chains or gvcs. For developed countries like the United States, their participation in gvcs might involve high value activities like research and development, while developing countries like India used to specialize in lower value activities like product assembly or office support. However, India's position on the global value chain is shifting due to government incentives and a digitally savvy economy.

It is now moving up the pecking order in the kind of services that it provides. By our estimate, many of the Fortune 500 companies have 50% to 60% of their global engineering and R and D work. They're getting it done in India. The society has delivered incredible software development skills, incredible innovation, startup and entrepreneurial skills. We've seen all of that happen over the last 28 years. It helps that India has a huge domestic market aiding its rise to be an economic powerhouse.

But is that alone enough to propel India up the value chain and provide meaningful jobs for its growing middle class? India is the worlds fifth largest economy after it overtook the United Kingdom in 2023. In a single decade, the country doubled its GDP to more than $3.7 trillion. But the journey didnt happen overnight and it could be an important case study for other developing countries looking to grow their services industry.

According to a survey conducted in 2022, more than 70% of MNC's were planning to invest in India in the next three to five years. Adit Jain is the founder of IMA India, an economic think tank providing insights into the indian market. If you want access to what will become a $7 trillion economy and what will become a $4.5 trillion consumer market private consumption. That is India's perceived longer term strength, the size of the domestic market.

Adit tells me that the rising attractiveness of the indian market can also be likened to the government's carrot and stick approach to enhance India's manufacturing capabilities. The carrot really is the production linked incentive where you get a subsidy based on the amount of production that you have achieved. The stick, on the other hand, could have to do with the imposition of very high tariffs for the import of products. However, there have been roadblocks to Indias ambition to be an export hub.

Indias production linked incentive scheme covers 14 manufacturing sectors ranging from pharmaceuticals to textiles. The scheme, which was launched in 2020 offering 24 $4 billion worth of incentives, has had underwhelming response from businesses in some sectors, such as solar modules, steel products and car components. Less than half a billion dollars have been claimed three years after the scheme was launched, mostly paid out to industries like electronics and food products.

We have 1500 clients in India and we recently did a study on how the PLI scheme has translated into reality actually was much more positive in terms of the feedback than I had earlier suspected. Rajat Dawan, India's managing partner from global consulting firm McKinsey, tells me that overnight success should not be expected. It takes decades to really become globally competitive in many of these value chains. Given the geopolitics around this, given the domestic push around PLI oriented incentives, also the increasing domestic consumption, I think the forces are now converging.

We're seeing the rise of the manufacturing sector. One such sector on the rise is its electronics industry, making India the world's second largest mobile phone producer after China. Samsung has been manufacturing phones in India since 2007 and inaugurated the world's largest mobile factory near New Delhi in 2018. Similarly, the main assembler of Apple's iPhone, Foxconn, has plans to scale up its manufacturing capabilities in India. Apple reportedly hopes to produce 25% of its iPhones in India by 2025.

Foxconn, officially known as Honhai, has a factory in Tamil Nadu which employs 40,000 people, and there are plans to double its workforce in 2024. In recent years, Indias digital transformation has also won the vote of big businesses looking to ban in the country. According to Nascom, an association that represents India's it industry, India is home to 40% of technology centers for large corporations driving high value activities like product innovation and AI banking. Burkimas like Goldman Sachs, Wells Fargo and JPMorgan have centers across the country.

What would be there for the banking sector would be slightly different for a mobility company would be different from a healthcare company, but by and large, specialized functional support could come from these global captive centers. The creation of global captive centers, also known as global capability centers, are part of a wider trend by MNC's in India, says Rajat. These GCCs could lead to cost savings of between $100 million, up to a billion dollars for their bottom lines. Just to baseline, where we are today, there are 1600 global captive centers of global corporations that are operating out of India.

There are about 1.7 million people who are working in these global captive centers in India today. Many of these centers in India are now handling more complex office functions for their parent organizations. Tech giants like Amazon and Microsoft are investing billions of dollars in data centers, while other companies like Verizon, Nokia and Cisco are doubling down on India. Dave West, Cisco's APEC president, says that the ease of doing business in India has improved over the company's 28 year history in the country.

At some point in calendar year 24, you will see Cisco manufacture in southern India. We're going to be manufacturing our best in class routers and switches. The new investments that MNC's are undertaking, many of them to de risk their supply chains, are happening in locations like Vietnam, like India, eastern Europe, Mexico. We build a very agile, very resilient supply chain. We look around the world with where we need to supply. We're very encouraged by what's happening in India in terms of manufacturing. Anand Gunibidu from american food giant Mondelez shared that sentiment.

All chocolate and beverage innovation development happens from our technical center here in Mumbai, India. For Mondelez, globally, one of the challenges for a lot of big businesses to come in to invest is infrastructure. How are MNC's navigating those challenges year after year? I see the infrastructure becoming much more reliable, much more quality. And if it wasn't there, we wouldn't be manufacturing in India.

Every developing economy will have its share of challenges to manage. One of the things is we could complain about the lack of landlines in India, but what it did was it allows us to leapfrog as now to be one of the top countries in the world with a mobile phone. You know, India is preparing itself to also develop and manufacture semiconductors. You need robust infrastructure to be able to do that. High speed connectivity, a reliable power grid. In 2021, India announced its plans to spend $1.4 trillion to develop infrastructure, such as roads, railways and airports over the next five years.

So these, I believe, are the game changing props. One of the reasons why India's economy is now growing at seven, 7.5%. What other characteristics are you seeing that are making the indian market very attractive place right now for a lot of investors? And MNC's the kind of digital savviness that we are seeing in our country. They are the ones who are really driving innovation. India has always had the vision to be high value in terms of what they're doing, but now look at some of the things that have come out of the India market. Paytm Flipkart we made a few acquisitions out of the India market, cloud cherry July systems. So that tells me that India's moved from the back office supporting to now delivering really rich, innovative, creative services that'll not be just valuable for the domestic India market, but for the rest of the world.

Economics, Business, Technology, India'S Economic Growth, Global Value Chains, Digital Transformation, Cnbc International