Agrochemicals, caustic soda, phthalic and maleic anhydride are identified from over 700 different chemicals exported during 1996-97 as having the highest export potential, according to a recent Occasional Papers on chemical sector published by the Export Import Bank of India.

Speciality chemicals, hydrogen peroxide and phosphorous and its derivatives, among others, have a medium range export potential, while carbon black has the lowest export potential, the paper indicated.

The international chemical trade -- estimated to be in the region of $1,417 billion -- is dominated by the US (North Atlantic regional block)and the European countries. Regional trade by Asian countries (excluding Japan) is small in comparison to these. And 65 per cent of the total trade in chemicals of Asian countries is intra-Asia.

However, the recent severe devaluation of the currencies of major countries in the Asian region has affected the short-term prospect of the Asianchemical manufacturing industry. The devaluation has made imports expensive forcing them to curtail imports and has severely hit the production of chemicals. Any benefits from currency devaluation which has made exports more competitive in the world markets, has been neutralised in most cases.

India has always been a net importer of chemicals. However, over the last three years over 700 different chemicals have been exported to different destinations. Of the total $21-billion (Rs 73,500 crore) worth of chemicals produced in the country during 1996-97, an estimated $2.5 billion worth of chemicals were exported, while around $3.1 billion were imported during 1996-97.

The top 10 chemicals exported form India in 1996-97 include: Cypoemethrin, phthalic anhydride, isoproturon, CFC, endosulphan, acetic acid, caustic soda flakes, aluminium phophide, maleic anhydride and ethyl acetate.

Exports of chemicals have grown faster (23 per cent CAGR -- compounded annual growth rate) than imports (16 per centCAGR) over the last 5 years. The proportion of exports of chemicals to total exports has risen to 7.5 per cent in 1996-97 from 6.0 per cent in 1992-93, while the proportion of imports of chemicals to total imports has risen marginally to 8.0 per cent from 7.8 per cent during the same period.

India is a net exporter of agrochemicals with a growth rate of 35 per cent over the last four years and has almost negligible imports (of agrochemcials) as compared to organic and inorganic chemicals.

The Exim Bank's occasional paper forecast that the annual growth rate of the chemical industry over the next five years at 5.4 per cent per annum. The growth rates for the main components will be two per cent per annum for organic chemicals, 10 per cent per annum for inorganic chemicals, and 14 per cent per annum for agrochemicals. However, these projected growth rates could be impacted to certain extent by the south-east Asian economic crisis. One positive fallout of this crisis, is that overburdening of capacity in theAsian region may be prevented. Such a forced restraint would make the industry stronger in the long run.

Also, in the near term, a lot of new capacity is expected to come onstream in Asia which could result in a glut and depressed prices. In addition, if the Chinese remnibi is devalued in the near future the Indian exports could be impacted significantly. Under such circumstances, increasing exports will be a challenge. Yet with the right initiatives at the firm level backed by strategic export marketing plan, the Indian chemical industry can enhance its export performance, the study says.

However, as the Chinese authorities have recently informed the IMF that they will not devalue their currency. This could be construed as a boon, albeit a temporary one, for there is likely to be aggressive competition from the existing manufacturers who are adding new capacities.

What ails Indian chemical industry:

Indian chemical industry is heavily dependent on imported petroleum feedstock (naphtha andgas) and primary petrochemicals, also the research and development tot total sales ratio of the Indian chemical is below one per cent as compared to the world average of between 4-5 per cent. Above all, barring few, chemical plants in India are not of global scale. The paucity of global scale plants has left the Indian chemical industry with large uncompetitive assets.

Benchmarking of Indian chemical industry:

The competition to Indian chemical exporters is mainly from China, Taiwan, South Korea, Indonesia, Malaysia, Thailand and Singapore. The chemical industry in these countries are somewhat comparable in size and all these countries primarily compete for a share in the Asian markets since 65 per cent of total international trade in chemicals of Asian countries in intra-Asia.

The parameters chosen for the purpose of benchmarking the Indian chemical industry vis-a-vis its competitors are: Government policies and infrastructure. The stability of the government and its policy is very vital for thesuccess of exporting industries. Countries like South Korea, China and Singapore have clear-cut policies for their chemical industries. India does not have a clearly spelt out policy for its chemical industry. Infrastructure, natural resources, internationalisation and long- and short-term export strategy among others are vital for the success of chemical exports.