In spite of the problems faced in the domestic market by the chemical industry, its exports have grown by 15.2 per cent between the period April to November 1997-98 over the corresponding period in the previous year. Exports of all chemicals, including bulk drugs, cosmetics and basic chemicals, increased from Rs 5,901.3 crore to Rs 6,799 crore.Among the star performers were the drugs, pharmaceuticals and fine chemicals industry which increased its turnover from Rs 2,463.3 crore to Rs 3,040 crore, a jump of 23.4 per cent. The dyes and dye intermediate industry recorded a jump of 16.1 per cent to Rs 1,463 crore from Rs 1,259.9 crore.
Though the dyes industry recorded a growth rate of 23.78 per cent, the dye intermediates sector showed a paltry growth rate of only 4.27 per cent. Cheaper imports have been cited as the main reason for the poor production performance of this industry, which has in turn affected exports as well. Manufacturing of dyes has been discontinued in most of the developed countries dueto environmental reasons. However, they still continue to produce intermediates in higher capacities and fully depreciated plants, which gives them the competitive edge.
However, the basic inorganic and organic chemicals industry has shown a poor export performance. Growth of 12.11 per cent has been recorded by the inorganic sector, while the organic chemicals industry has shown a negative growth rate of 16 per cent. Reduction in import duties has been cited as the main reason for the poor performance of this industry.
Apart from the higher cost of imported raw material, a fallout of higher import duty coupled with higher cost of power, fuel and water has made the industry uncompetitive. Sources in Chemexcil said that unless corrective measures are taken by the government the sector will not only continue losing its share in the export market but they would even lose out in the domestic market.
Apart from the domestic factors, international factors like the depreciation of the south-east Asiancurrencies has also affected exports. Consignments have been reported to have been returned because the buyers in these countries were not in a financial position to meet the commitments.
The chemical industry has taken this development with mixed feelings. One section of the industry believes that this depreciation in currencies will affect India's exports for quite some time. However, there are others who say that without imports of chemicals, which are used to manufacture other downstream chemicals or some other products like textiles (for which dyes are required), the shakeout will only be temporary.
Indian industry will be in a position to capture international marketshare previously occupied by these players. However, they warned that the same opportunities will be available to other players too.
Certain favourable measures need to be implemented by the government for exporters to capitalise on these hidden opportunities.
No intervention please
One of the mainreasons cited by almost all producers and exporters of chemicals for slower export growth has been intervention. Sources in Chemexcil say that the industry does not need incentives, but there should not be government intervention as well.
Globally, Indian products command a reputation for good quality, but they lose out when it comes to meeting delivery schedules. Infrastructure bottlenecks apart, delays are also taking place because of port and customs authorities. The container handling costs at Indian ports are one of the highest in the world. International carriers charge higher freight rates on Indian goods to cover up for the cost of delays and inadequate port services. Most of the equipment used by the port authorities is obsolete, leading to pilferage and rejection of goods. Delays are also taking place because of non-productive labour at ports. Under pressure from the port unions, the government does not allow traders to use their own labour.
Ever-changing government policies are also affectingthe industry. The recent announcement of a reduction in duty drawback from seven to three per cent, which has had a major impact on the future profitability of exporters.
An exporter works out his costing keeping in mind the various norms set by the government. By the time delivery of goods takes place, the scenario is changed and he ends up taking a loss on his exports. Ironically the reduction in duty drawback was announced months after the five-year exim policy was introduced.
What industry is desperately demanding is a clear-cut exim policy with little or no change plus a single window clearance for all international trades.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
