Page 134 - CW E-Magazine (20-5-2025)

Point of View

manufacturing. It replaced the Merchandise Exports from India Scheme, which was challenged by other nations for not complying with global
trade rules.

While RoDTEP rates vary between 0.3-4.3% depending on the product, most chemicals have a 0.8% incentive, with some benefitting from
higher rates up to 1.4%. Exporters receive these incentives in the form of transferable duty credit scrips, which can be utilised for settling import
duties or can be sold in the market. In March last year, the government extended the scheme to EOUs and units in SEZs.

While there have been repeated pleas from the chemicals industry that the support provided does not fully compensate for levies imposed
and is lower than the support received by producers in other countries, particularly China, no increase is on the cards as of now.

Managing import tariffs
The F&SC industry uses several basic chemicals that India does not produce at all or at scale, necessitating imports. Producers of these
inputs are keen to protect their domestic market position and have pleaded for higher tariff protection, and, more lately imposition of non-tariff
barriers such as quality standards. These demands have been vigorously opposed by user industries, who see no reason why they should be
made to pay the price for inefficiencies and uncompetitive production of basic chemicals arising, for examples, due to lack of access to the
right feedstocks, poor economies of scale, or bad choices of technologies.

Finding a balanced tariff regime that takes care of the interests of the bulk chemicals industries, while not jeopardizing the competitiveness
of downstream industries, is a task the government has mostly got right, through a graded import tariff scheme that taxes raw materials lower
than derivatives therefrom. But the chemicals industry is a vastly complex industry and expecting graded tariffs for each chemical transforma-
tion is impractical, and the practice world-over is to lump a similar lot of inputs into one tariff code. Selectively tinkering with this structure is
a dangerous exercise that opens the floodgates for vested interests, and is best avoided.

Crucially, unfair trade practices such as dumping below ‘normal’ prices, and surge in imports, need to be tackled with the appropriate
response permitted under trading rules, including speedy imposition of anti-dumping and safeguard duties. There is no reason to be reticent on this.

Managing global trade relationships
The global trade system that has served economies well is broken. What we are seeing now is the end of globalization and an era of bilateralism,
and whether the latter can make up for the former remains to be seen. Under the new circumstances, robust and strategic trade agreements are crucial,
as they can open international markets, but India’s track record on this has been poor as far as the chemicals industry is concerned.

India has signed 13 Free Trade Agreements (FTAs) in the last five years including with ASEAN, Australia, Japan, Mauritius, South Korea,
UAE, and most recently the UK, and is pursuing ones with the EU and Canada.

The chemical industry has hitherto not been a beneficiary of the early FTAs, as many of the partner countries (e.g., South Korea, UAE,
Thailand) are leading petrochemical producers with significant competitive advantage over Indian producers. While these overseas producers
have benefited from the opening of India’s deficit markets, India’s have little to show by way of gain in exports. The more than doubling of the
cumulative trade deficit in petrochemicals with ASEAN countries, Japan and South Korea between FY10 and FY18 is proof enough, and has
prompted calls for excluding petrochemicals from future FTAs.
But the impacts of the more recent FTAs and the ones to come may be different. Unlike the earlier ones that looked ‘East’ the new FTAs
are looking to gain access to Western and African markets. In these regions there is today a worry of over-reliance on China as supplier, and
businesses are looking to diversify supply chains. Government policies are also nudging them to do so, and this poses an opportunity for Indian
chemical suppliers.

The agreement with the UK, just agreed to, enables zero-duty access to Indian organic chemicals, which, according to some estimates,
could drive exports from India to the UK from $420-mn in 2024 to $966-mn by 2027. India’s F&SC industry will do well to gear up for this
opportunity, which will require compliance with the UK’s chemicals regulation, which is akin to the more-familiar European regulation, REACH.

The Confederation of Indian Industry identifies 13 sectors that can significantly contribute to India’s export potential, and chemicals is one
(automotive components and electrical apparatus, are two others). These sectors use high, if not complex, technology involving a moderately
high level of research and development.

Realising this potential will require concerted efforts by government and industry.
Ravi Raghavan

134 Chemical Weekly May 20, 2025

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