While exports from India’s chemical industry has benefitted from the closure of some big chemical manufacturing facilities in China, the industry continues to face several challenges and hurdles including the non-tariff barriers. In an exclusive interaction with The Dollar Business, Satish W. Wagh, Chairman, Chemexcil, talks about many such challenges and suggests ways and means to boost exports from the industry.

Interview by Ahmad Shariq khan | March 2018 Issue | The Dollar Business

TDB: The government is working on a draft National Chemical Policy. What are the key recommendations made by the Council in this regard?

Satish W. Wagh (SWW): The biggest challenge that the industry faces is environment-related controls. While we appreciate the need for environmental sustainability, exporters ought to have the flexibility to change product mix, increase production, etc., to take advantage of cyclical demands in the overseas markets. The process of environmental clearance is so time-consuming that by the time clearance is received, the opportunity no longer exists. Besides this, we have also recommended that the government rectify the inverted duty structure that plagues the industry at present.

TDB: What are your thoughts on the Union Budget 2018-19?

SWW: As far as our industry is concerned, the Budget 2018-19 was positive to the extent that the corporate tax rate of 25% has been extended to MSMEs whose turnover is up to Rs.250 crore.

On the negative side, duties have been increased on certain toiletries and on vegetable oil (crude) to 30%, which will make oleochemical products costly and uncompetitive in overseas markets. The Social Welfare Surcharge of 10%, that was introduced on aggregate customs duty, will also increase the cost of our imports.

The Budget has made some amendments in customs facilitation and dispute resolution which are welcome. However, their actual impact will only be understood in the future as and when we start receiving feedback from industry. The approval of the amendments in MSME Act to redefine the criteria for classification of MSMEs based on turnover is also commendable.

TDB: What is your take on the Mid-term Review of the Foreign Trade Policy released in December last year?

SWW: In the Mid-term Review of the Foreign Trade Policy 2015-2020 a provision has been made regarding across the board increase of 2% in existing Merchandise Exports from India Scheme (MEIS) rates for MSMEs/labour intensive industries, involving additional annual outlay of Rs.4,567 crore. We were disappointed to note that the chemical industry is not covered for any additional increase in MEIS, except for few items like essential oils and fragrances. We have requested the government to consider supporting the chemical industry too, as there are many products in this industry that involve labour-intensive manufacturing processes. The units that manufacture these products are also suffering from similar infrastructural inefficiencies and associated costs involved in export of products for which the government has announced an increase in MEIS.

While the trust-based self-ratification scheme for duty-free imports is a positive step, it is presently only available to Authorized Economic Operators (AEOs). This scheme should be made available to other categories of exporters who are facing issues related to norms fixation.

TDB: The government has been deliberating upon the idea of chemical parks, along the lines of Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs) for sometime now. What are your suggestions to the government to make these proposed chemical parks a success?

SWW: The government could support us in overcoming infrastructural challenges by allocating land and resources to different chemical manufacturing segments under Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs). For instance, dye clusters in PCPIRs can be demarcated as separate entities called “Dye Parks”. The government could also look to create a one-stop portal for all the exporters in India.

TDB: India is still not at par with its competitors when it comes to ease of doing business. What can the government do to rectify this situation?

SWW: Central Board of Excise and Customs (CBEC) has already taken some important steps in this direction, like the Authorized Economic Operator (AEO) Programme for trade facilitation, the SWIFT system, e-SANCHIT for online submission of import documents, etc., which have helped improve our business environment. However, importers continue to face issues with FSSAI which delays the imports of dual-use, but non-food use items, which are often needed for exports in our sector. We have highlighted this issue to the concerned authority but the same is yet to be resolved.

TDB: What can be done to increase exports of chemicals from the country?

SWW: I think the government has been proactive in announcing a number of measures to improve the global competitiveness of the Indian chemical industry. Industrial licensing has also been abolished in most chemical sub-sectors, except a small list of hazardous chemicals. Extending the same spirit, foreign direct investment (FDI) up to 100% in the chemical sector has also been approved.

In my view, in order to put chemical exports on a high-growth trajectory, India needs a market diversification strategy based on the changing dynamics of growth in the world economy. Worth pondering here is the fact that India’s bilateral/multilateral trade engagements have so far largely been with the industrial powers or driven by non-trade considerations. In the future, it is imperative for the country to engage with regions and countries that are not only promising markets but are also major suppliers of critical inputs and have complementarities with the Indian economy.

"Owing to thin margins, stability of rupee is indeed important for chemical exports"

TDB: What challenges does the Indian chemical industry face in the international market?
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SWW: Technical barriers to trade (TBTs) are increasing day-by-day. Indian companies are facing a lot of TBT measures around the world which impacts exports to these countries. Chemexcil has actively held consultations with stakeholders regarding costs related to Letter of Access (LoA) with respect to EU’s Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) and has taken up the issue with the Ministry and the European Chemicals Agency. China too has come up with the New Chemical Substance Notification (NSCN), which is similar to REACH.

TDB: Industry leaders in recent times have expressed concerns over volatility in currency market and the struggle faced by Indian chemical manufacturers in EU market. Your thoughts?

SWW: Stability of rupee is indeed important for exports owing to our thin margins and the costs involved in hedging. Inorganic and organic chemicals are still not covered under Generalised Scheme of Preferences (GSP) concession. This impacts our competitiveness vis-à-vis competitors, including EU.

TDB: You recently said that while the domestic industry is simply unable to meet the demand due to policy bottlenecks, Chinese manufacturers continue to hurt the industry. How big an issue is this for the chemical industry, particularly with regards to exports?

SWW: While I did say that, at present our industry is enjoying a flow of order since many competing units in China are getting closed due to environmental reasons. To take advantage of the situation, policy bottlenecks that are hurting the industry need to be resolved fast.

TDB: How effective are our trade remedy provisions? Do you think we need to review the process of applying ADDs?

SWW: India’s trade remedy laws are supposed to be in sync with the WTO provisions. But in some instances, monopoly suppliers have been successful in getting anti-dumping duties (ADD) imposed on their products. However, unfortunately, this trend is seen overseas too, especially in China where we have witnessed a lot of new anti-dumping investigations on chemicals originating in India. I believe, there is a need to bring in a more holistic policy so that smaller companies also enjoy a level playing field.