The disintegration and diffusion of production process across the world, termed as Global Value Chains (GVCs), has enabled various developing countries to participate in world trade. In this scenario, India, with its abundant labour and manufacturing capability has the potential to become a key player in international commerce. The current study based on Koopman et al.’s (2010, 2014) disintegration of gross exports into several value-added components, attempts to assess their individual impacts on labour productivity of India, and determine the importance of GVC networks towards boosting the country’s growth prospects. Panel Vector Autoregression (PVAR) approach is used to analyse annual data from 16 manufacturing industries for the period 2001–2019. The corresponding Orthogonalized-Impulse-Response-Functions (OIRFs) display short-run effects of FVA, while the aggregate DVA fails to impact labour productivity significantly. The OIRFs further document fluctuating effects of shocks to DVA in final and intermediate exports absorbed by direct importers, which persist for some time. The effects of DVA in intermediate exports re-exported to third countries and those returning home, are short lived. The Forecast-Error-Variance-Decomposition (FEVDs) in line with the OIRF plots, identify the DVA in intermediate exports absorbed by direct importers, to explain the maximum variation in labour productivity. The study contributes to the existing literature by identifying that GVCs, in its different stages of production integration, can have differing impacts on the economy. Therefore, analysing GVCs in aggregate may not permit targeted policy formulation for utmost benefit of an economy.
