Breaking Barriers – Tackling Export Challenges in India’s Chemical Industry
The chemical industry in India stands as a critical pillar of the country’s economy, boasting one of the largest capacities for production and export in the world.
Valued at approximately $220B, India’s chemical market is set on a rapid growth trajectory, with projections suggesting it could reach a staggering US$ 850-US$ 1 Trillion by 2040. India ranks as the third-largest chemical producer in Asia and sixth globally. India also holds the 14th position in the export of chemicals.
However, despite this prominent global standing, Indian chemical exporters face numerous challenges that limit their full potential, especially in highly competitive international markets. In this article, we explore the challenges faced by Indian exporters and potential solutions to strengthen India's chemical export sector.
India’s Position in the Global Chemical Market
India's chemicals industry encompasses over 80,000 commercial products and accounts for 2.5% of global chemical sales, with exports reaching more than 175 countries. While this is an impressive footprint, it remains modest compared to major chemical producers like China and the United States, underscoring the potential for growth in India’s global market presence.
Indian chemical exports recorded a remarkable growth of 106% in 2021-22 compared to 2013-14, driven by a surge in shipments of organic and inorganic chemicals, agrochemicals, dyes and dye intermediates, and specialty chemicals.
This impressive growth underscores the sector’s potential; however, it also highlights the need for strategic advancements to further expand India’s global market share and strengthen its competitive position.
Key Challenges for the Indian Chemical Export Sector
Intense Global Competition
India faces excessive competition from leading global chemical producers, notably China, which has long been the world’s leading producer and exporter of industrial chemicals – particularly basic and commodity chemicals.
A recent study by the Information Technology & Innovation Foundation (ITIF) reveals that China is advancing rapidly in critical areas of chemical innovation, with notable progress in patent filings, R&D spending, and high-impact academic research publications. With its well-developed infrastructure and government-backed support for exports, China’s amplifying dominance creates significant pricing pressure in global markets.
Quality Compliance & Regulatory Issues
The chemical export industry is subject to stringent global regulations, with regions like the EU and the USA enforcing strict compliance standards. For example, meeting REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals) requirements in the EU and TSCA (Toxic Substances Control Act) regulations in the USA can be complex and costly.
Each regulatory framework necessitates unique documentation, testing, and compliance processes, requiring significant investment in infrastructure and skilled personnel. Furthermore, some international buyers demand additional certifications, further increasing compliance costs and extending the time-to-market for Indian exporters.
Inadequate Infrastructure
India's infrastructure setup faces several challenges, including limited manufacturing units, outdated transport networks, and restricted access to critical raw materials. The country's dependency on imports for some essential raw materials creates bottlenecks in production schedules, driving up costs.
For example, the high reliance on imported chemicals and intermediates impacts the timeliness and costs of chemical exports, leading to longer lead times. Additionally, inefficient warehousing infrastructure and logistics delays further exacerbate the situation, resulting in higher operational costs and increased risks in the export process.
Low Credit Access
Access to affordable credit is essential for exporters to manage cash flow, especially in capital-intensive industries like chemicals. However, Indian exporters often face high collateral requirements, interest rates that are above the global average, and extensive paperwork for securing loans.
These financial constraints are particularly burdensome for small and medium-sized enterprises (SMEs) that lack the necessary assets to meet the stringent lending criteria. Furthermore, currency fluctuations add an additional layer of financial risk, eroding profit margins and complicating financial planning for exporters.
Tariff Barriers
Anti-dumping duties are tariffs imposed by a country on imported goods that are sold at unfairly low prices, often below the cost of production or market value. This practice, known as dumping, can harm domestic industries by driving local competitors out of the market or reducing their profitability.
While these duties protect domestic businesses, they create challenges for exporters because the additional tariffs increase the overall cost of their goods. When these goods are exported to countries like the US or EU, the higher prices make them less attractive compared to local or other international competitors. This can lead to reduced demand, lower market share, and difficulty in maintaining profitability.
Sustainability Compliance Pressure
Sustainability has become a non-negotiable requirement in global trade, with mechanisms like the EU's Carbon Border Adjustment Mechanism (CBAM) imposing carbon taxes of 19.8% to 52.7% on imports. This policy seeks to align the carbon costs of imported goods that do not align with EU emission standards with EU-produced goods, compelling global manufacturers to adopt greener production practices.
For Indian manufacturers, this creates a significant hurdle. Many exports from India, especially in energy-intensive industries like chemicals and steel, now face these additional carbon tariffs if they do not meet the required environmental standards. Complying with such standards involves costly investments in cleaner technologies, renewable energy adoption, and sustainable sourcing – expenses that smaller or mid-sized exporters may struggle to afford.
Possible Solutions – Overcoming Chemical Export Challenges
Domestic Supply Chain Reinforcement
Strengthening the domestic supply chain is essential to address the dependence on imported raw materials and inefficient logistics. Expanding manufacturing capabilities, improving transport infrastructure, and promoting local sourcing can lead to cost savings and reduce production delays.
Additionally, investment in warehousing, logistics facilities, and digital infrastructure can streamline the supply chain, making Indian chemical exports more competitive.
Regulatory Reforms
Advocating for regulatory reforms is crucial to alleviating the tariff burden on Indian exporters. While tariffs are often used to protect domestic industries; excessive duties and complex compliance requirements hinder Indian exporters' ability to compete effectively in global markets.
Introducing reforms to simplify export regulations and reduce tariffs could significantly lower costs for exporters. This would make Indian products more affordable and attractive internationally, while also saving businesses time and resources spent navigating complicated paperwork. By creating a fairer and more straightforward export system, Indian businesses can focus on expanding globally, maintaining quality standards, and driving growth, ultimately strengthening India’s position in international trade.
Harnessing Labor & Workforce
India's large, youthful workforce presents a significant opportunity for the chemical industry, especially with targeted skill development and upskilling programs. By investing in training programs that focus on key areas like regulatory compliance, technology integration, and process engineering, companies can cultivate a highly capable workforce ready to meet global standards.
This approach not only addresses labor quality issues but also boosts productivity and enhances compliance across the sector. Strengthening the talent pool in these critical areas will help Indian companies better compete internationally and adapt to evolving industry demands.
Sustainability as a Dual Play
As environmental compliance becomes increasingly pivotal in global markets, Indian chemical companies must view sustainability as both a defensive and offensive strategy. On the defensive side, adopting green practices helps companies adhere to strict environmental regulations, such as the EU's carbon border adjustment mechanism (CBAM) and carbon taxes, which are becoming more prevalent.
On the other hand, By positioning their products as "sustainably sourced," Indian exporters can appeal to environmentally-conscious buyers, especially in regions like Europe and North America, where green certification is increasingly important. Adopting sustainable practices not only ensures compliance but also opens up new growth avenues, enhancing the global reputation of Indian chemical manufacturers.
Industry Bodies & Collaboration
Collaborating with industry bodies and forming partnerships can help Indian exporters overcome key challenges. For example, working with Contract Development and Manufacturing Organizations (CDMOs) can boost production efficiency, ensure compliance with regulations, and address infrastructure issues.
These partnerships are especially valuable for smaller companies, as they provide access to expert guidance, resources, and networks. This support allows businesses to focus on growth while managing operational challenges more effectively. By leveraging such collaborations, Indian exporters can improve their competitiveness and strengthen their position in global markets.
Summing Up – Key Takeaways
India’s chemical export sector holds vast growth potential, but challenges such as global competition, regulatory hurdles, infrastructure gaps, and sustainability compliance must be addressed. Strengthening the domestic supply chain, simplifying regulations, and investing in workforce skills are essential for improving competitiveness. By focusing on sustainability and strategic collaborations, India can enhance its global position and drive long-term growth in the chemical industry.
Scimplify – The Way Forward
As a leading Contract Development and Manufacturing Organization (CDMO) in India, Scimplify helps Indian chemical manufacturers navigate complex export challenges by providing comprehensive solutions across critical areas. By optimizing your manufacturing capabilities and enhancing logistics and warehousing, we are contributing to strengthening the domestic supply chain, ensuring timely and cost-effective deliveries that boost global competitiveness.
At Scimplify, we support sustainability by assisting chemical businesses in complying with global environmental standards and ESG principles. This ensures that the chemical products you export are sustainably sourced, and appeal to eco-conscious buyers, thereby unlocking new growth opportunities.
Are you a chemical manufacturer struggling to cope with the challenges in the chemical export sector? Write to us at info@scimplify.com.
