Page 133 - CW E-Magazine (20-5-2025)

Point of View

Enabling trade environment can boost India’s

exports of fi ne & speciality chemicals

While the Indian chemical industry remains a net importer overall, a few segments have a positive trade balance. These are mostly fine and
speciality chemicals (F&SC) that are made in multi-purpose plants in batch mode and typically involve several stages of chemical conversions
of basic chemicals. Some of the important F&SC segments in an Indian context are active pharmaceutical ingredients (APIs), agrochemicals,
colorants (dyes & pigments), fragrance & flavour (F&F) ingredients, and textile chemicals.

Robust domestic and export growth
The F&SC industry has seen robust growth in the last several years, driven both by rising consumption in the domestic market as well as
exports.

Per capita consumption of most F&SC are well below global averages, let alone of the developed world, and there is significant headspace
for domestic market growth.

At the same time, the trend of outsourcing production of chemistry-intensive manufacturing to low-cost centres in Asia will likely stay,
despite efforts in the developed world to diversify supply chain risks by incentivising local production of critical inputs, particularly for pharma-
ceuticals. The cost arbitrage that comes with sourcing F&SC from India or China has two components to it: First is the costs of building the
plants and operating them – which can be any from one-third to one-fifth of a similar plant in the US or Europe; the second is a relatively lax
regulatory regime, which makes the costs of compliance lower.

Progressive companies in the F&SC space in India do recognise that there is merit in embracing more sustainable operations, such as
through deployment of ‘greener’ processes, astute waste management & recovery, continuous manufacturing, and efficient end-of-pipe treat-
ment of effluents inevitably generated. They aim to not just stay competitive, but also to lead responsibly.
Sector trends
The pharmaceuticals industry – including APIs and finished formulations – is the largest export-focussed sector in the Indian F&SC industry.
In FY23, exports were around $19.87-bn, compared to imports of just $2.61-bn, giving the sector a positive trade balance of about $17-bn.
A point to note is that a significant portion of the raw materials that underpin production of APIs is imported (mainly from China) – a dependency
that is neither desirable nor sustainable.

The colorants industry is another global leader in production and exports, ranking only below China. It accounts for about 15% of global
exports (valued at $2.6-bn in FY24) and has strong market positions in some categories such as reactive dyes and phthalocyanine pigments.
In one of the strongest indications that the production of colorants has irreversibly shifted to Asia, a leading Indian pigments manufacturer,
Sudarshan Chemicals, recently acquired the world’s largest, the Heubach Group.

India is also the second-largest exporter and the fourth-largest producer of agrochemicals globally, with about 50% of output exported.
USA and Brazil – two large agri-producers – accounted for ~45% of India’s $5.4-bn agrochemical exports in FY23.

The high dependency of the Indian F&SC sector on exports does pose risks in today’s world where new trade and non-trade barriers are
cropping up. How the country’s policy makers and the industry navigate these troubled waters will have lasting repercussions. It will require
managing export incentives, tariffs on imports, and, not in the least, global trade relationships.

Export incentives
Export incentives serve an important purpose by enabling domestic manufacturers improve competitiveness in global markets. The most
important ones in India are the Remission of Duties and Taxes on Exported Products (RoDTEP), the Export Promotion Capital Goods (EPCG)
Scheme and benefits for Special Economic Zones (SEZs) and Export-Oriented Units (EOUs). These aim to compensate, at least partly, for the
indirect levies companies pay when purchasing inputs (for exports); lower capital investment costs; and promote scale by incentivizing export-linked
production, respectively.

The RoDTEP Scheme was introduced in Jan. 2021 and provides a mechanism for reimbursement of taxes, duties and levies, currently not
refunded under any other mechanism, at the central, state and local level, but incurred by exporting entities in the process of manufacture and
distribution of exported products. These include, for example, VAT on fuel used in transportation, mandi tax and duty on electricity used during

Chemical Weekly May 20, 2025 133

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