India is popular for textiles. Even those that come in bright-colours. It is not a surprise therefore that India is one of the largest producers and exporters of reactive dyes that give fabrics their many hues. What makes India a clear exports leader in this segment? The Dollar Business analyses.
BY Anishaa Kumar | October 2017 Issue | The Dollar Business
India’s association with colour and dyes is well-known and date back centuries. While cotton was discovered in India around 6000 BC, the trace of natural dyes that were used to colour the fabric goes back roughly to 1200 BC. Come today, and India has grown to become one of the largest exporters in the world, of both cotton apparels and reactive dyes that give them their vibrant colours!
The global market for dyes (including pigments and dye intermediates) is at present worth around $23 billion – while the dyes and pigment market is valued at $16 billion, dye intermediates market is worth about $7 billion. Dyes are of various kinds – from direct dyes and disperse dyes to reactive dyes – but it is the reactive dyes segment where India has really taken giant strides when it comes to exports.
According to a report by US-based Global Industry Analysts Inc., the reactive dyes segment is one of the fastest growing segments of dyes across the globe, with the Indian reactive dyes market growing rapidly at a CAGR of 4.3% over the last few years. In fact, the paint and dye industry has been an important contributor to India’s exports basket, with export of reactive dyes growing at a decent pace. In FY2017 the exports of reactive dyes [HS Code 320416] increased 5.93% y-o-y, to $565.97 million from $534.28 million in FY2016.
Reactive dyes are popularly used in tanning industry as they possess the property to attach to a fabric and hence give a richer and stronger colour to the fabric on which they are applied. In fact, they are the most commonly used dyes for colouring cotton fabrics. And, not to say the growth of textiles and apparels sector is further helping the industry.
Reactive dyes are available in several varieties and types such as Mild Exhaust (ME) as well in a broad range of colours – orange, brown, blue, green, violet, yellow, red, black, etc., with the most popular in exports being blacks, blues and reds which contributed $226.50 million, $126.62 million and $96.76 million respectively to India’s exports in FY2016.
The story so far
The exports from the industry has witnessed a remarkable growth over the last few years, with exports of reactive dyes reaching a whopping $565.97 million in FY2017. In fact, between FY2013 and FY2017, exports reported a jump of 53.7%. In FY2015, exports had touched $643.60 million mark. But, it dropped to $534.26 million in FY2016. According to exporters, the poor performance was because of the changes in the business environment and a drop in prices of the product, globally. Hence, in FY2016, while exports volume went up 7% y-o-y, value of exports dropped 17% y-o-y.
“Exports of reactive dyes has been constantly growing over the last few years. The growth, although not rapid, has been steady. And that is a good thing,” comments Bhupendra Patel, President of Gujarat Dyestuffs Manufacturers’ Association.
Further, the product category has been very successful in penetrating into India’s non-traditional exports markets. Last year, India managed to export reactive dyes to about 90 countries. While exports to Turkey, Bangladesh, Thailand, Singapore and Pakistan made up 52.59% of the total exports, exports to Americas constituted an alluring 19.11% share, with Honduras, Brazil and Mexico being the largest markets of Indian dyes.
Battle half won
Although India has achieved a great deal in this product category, the battle is only half won. India’s presence in US and Europe, the two largest markets for reactive dyes, is still quite negligible. In FY2017, Indian exports to US and EU were $9.16 million and $52.02 million, respectively, which is only 10.81% of India’s total exports of the product.
This, exporters say, is because of the ever-increasing regulations imposed on dyes – like Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) – by EU authorities. Agrees Monil Shah, Partner, Roop Dyes and Intermediates when he says, “REACH has been an obstacle not because the policy is complicated, but because obtaining certificates under the norm is expensive. Big companies can afford it, but for medium-size companies like ours it’s difficult to recover the money spent on certifications.”
Certification can cost anywhere between €20,000 and €80,000, per substance. This is what is hampering India’s exports to the region. “The market is very competitive, which is why many Indian traders are unwilling to risk the investment; a reason why exports to EU is low,” explains Dakshesh Machhar, Director, Jay Chemicals.
REACH requires importers/buyers to get the product tested, but the practice has been the reverse. “Interestingly, Indian exporters are paying for the test from their pocket as they live under a constant fear of losing the market share,” states Patel. That said, on the positive side, the government has been very helpful. It provides financial assistance of 50% of the cost of getting a lab test done.
Sine qua non
Besides subsidising the lab/certification costs, the government has been extending support to exporters in form of incentives and duty drawback. While exporters of reactive dyes, in general, currently receive a 2% reward under Merchandise Exports from India Scheme (MEIS), exports of reactive red, yellow and blue dyes is entitled to a 3% duty credit scrip under MEIS. Alongside, they also receive a duty drawback of 1.5%.
The Foreign Trade Policy 2015-2020 slashed the MEIS benefit from 5% to 2%. Due to this, exporters have a mixed opinion of the new FTP. However, there are exporters like Rajgopal, Vice President, Ria Dyes and Chemical, who are indifferent towards the benefit. “We want the government to support the domestic industry in order to propel exports, with or without the incentives,” says Rajgopal. Another area where exporters need support from the government is the current banking system. Shah explains, “While doing business with some countries, we can transact only through select banks. For instance, while dealing with Iran, we can only go through UCO bank. This imposes a limitation.”
Shah also adds that India needs to sign strong free trade agreements to boost exports of reactive dyes. “Look at countries like China, a major competitor in this segment, that has strong trade agreements with major markets like Italy, Germany, etc. These free trade agreements provide a duty-free import status in these markets. We should also push for such agreements with countries where there is business potential.”
Currently, importers in major markets, both in Asia and Latin America, pay around 6.7% import duty, which makes Indian dyes less competitive.
Vibrant future
Profit margins, exporters say, depend on several factors such as colour, specification, etc. Shah explains that competition has compromised profit margins for exporters. He says, “In Ahmedabad alone, there are about 650 factories that manufacture and export the product. At the moment, manufacturers work at 5-8% and traders at 3-5% margins.”
According to the National Information Centre, the total consumption of dyes and pigments in India has gone up by as much as 80.95% in the last eight years, touching 304,000 metric tonne (MT) in FY2016. It also reveals that the country’s production capacity can be increased by another 23%. Well, more production also means more exports from the country at competitive price!
Despite a few challenges, exports of reactive dyes remain a lucrative business. While global demand for reactive dyes is growing, there are many markets that remain untapped. Exporters of reactive dyes too feel that both old and new companies must step in with innovative ideas to increase production – which will also boost competitiveness. No doubt, the opportunity is huge. And with a stable growth rate, a leadership position, and several untapped markets, Indian exporters of dyes seem well-poised to reap benefits of this vibrant market.
TDB: How has the export performance of reactive dyes industry been?
Bhupendra Patel (BP): Over the last couple of years, exports volume and value haven’t increased much. But it isn’t negative. It is stable and we’re happy about it. China has also been exporting reactive dyes since the mid-1990s, but India has been stronger than China in this product category. India and China both face the same pollution problem. But, we have an advantage over them because the industries in India are in clusters and testing facilities are easily available in one place.
TDB: What makes Indian reactive dyes popular in the international market?
BP: The dyes industry in India is very diverse. We produce a huge array of colours with different specifications. Also, our small-scale industry is larger than that of China. The Chinese produce dyes in volumes, in large facilities. So, when customers want dyes in large quantity they order from China. But this sector isn’t about volumes. It’s about quality and variety which our small-scale industry produces, giving us an edge over China.
TDB: In the recent years, exports to EU and US have been bogged down by stringent regulations. Has the government done anything in this regard?
BP: The Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) requires the dye buyers/users to get the products tested before importing it. However, instead of buyers/users conducting the test, manufacturers in India are getting the registration and testing done for the fear of losing their market share. This is one way to keep the buyers attracted, but it chews into our margins. To stabilise the situation, the government has stepped in and bears 50% of the testing costs. However, I still feel that the government can do a lot more by also bearing the registration and licensing expenses, etc.
TDB: How important is R&D for the industry’s growth?
BP: R&D is crucial for the industry’s growth because it an important driver of innovation. For instance, take the colour yellow – it requires R&D efforts to create different shades of yellow which react differently on different fabrics. Further, R&D ensures we keep on progressing and evolving, in terms of various colours, raw materials used, etc.
TDB: Does the market have space for new entrants?
BP: The opportunities in the reactive dye market are enormous. Currently, our emphasis is only on certain areas. But the market is big and there are many untouched areas that can yield opportunities for entrepreneurs and new entrants. The one point for new exporters to keep in mind is that the dyestuff industry has a renewed focus on the environment. So, a new player in the industry must have a thorough understanding of eco-friendly technologies.
TDB: What challenges do manufacturer-exporters of reactive dyes face?
Dakshesh Machhar (DM): In the recent years, the Indian government has become more stringent with regards to the implementation of environmental regulations. So, companies are now obliged to follow strict regulations, which has a direct impact on the company’s overall expenses. While there are effluent plants that are being set up by the industry with assistance from the government, waste treatment remains a concern as it is expensive. Waste management is something that will remain associated with this industry, with or without assistance from the government.
TDB: How has the market evolved over the years?
DM: India has been a leader in this segment for a long time. The reason is simple – both technology and raw materials are easily available in India. At present, it is estimated that the global market is growing at a rate of around 4% annually. And India is well placed to keep up with this growth rate.
In the future, I believe, the market will become more challenging because of the increasing use of synthetic fibre in clothing fabrics. If it happens, the consumption of reactive dyes will be impacted.
TDB: Over the years, regulations on exports to EU have increased. Can you explain the situation and how your company is addressing this issue?
DM: The world over, ecological and environmental issues are at the top of the agenda, be it governments or the apparel brands. Similarly, everybody in our industry is also trying to produce the dyes in the safest way possible. And now, the industry is moving towards Zero Discharge of Hazardous Chemicals (ZDHC). More and more apparel and textile brands are demanding this approach and insist that dye producers adhere to it.
The Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) regulation demands that reactive dye importers in Europe register and evaluate each product, which is expensive. Depending on the product and the volume, the cost can vary between €20,000 to €80,000 per substance. As for our company, we have implemented ‘Advance Care’, an initiative where we emphasise on ‘Renew, Reuse, Recycle’. We are already working on ‘zero liquid discharge’ at one of our main manufacturing locations.
TDB: Are you content with the current duty drawback rates and MEIS benefits that the industry is entitled to?
DM: What the industry now needs to do is to focus on innovation. Incentives under MEIS, whether 2% or 3%, are not sufficient to keep investing in innovation and technology. On top of that, these incentives keep on reducing every year. Each company has its own way to remain competitive, for us it is innovation that plays an important role.
Copyright @2024 The Dollar Business. All rights reserved.
