Diversification to benefit Indian exporters: Ind-Ra

Diversification to benefit Indian exporters: Ind-Ra

As the global demand is picking up and global players are diversifying their supply chain, it is expected that Indian exports will show a gradual improvement in the next 2 years, says India Ratings & Research (Ind-Ra).

Mumbai

As the global
demand is picking up and global players are diversifying their supply chain, it
is expected that Indian exports will show a gradual improvement in the next 2
years, says India Ratings & Research (Ind-Ra).

Many sectors
like textiles, auto ancillary, pharmaceuticals, and chemicals are already
benefiting from the new trend. The companies now feel confident as they can
expand their capacity. The Indian companies will have to bring new policy
measures to encourage large-scale manufacturing operations to move up the value
chain. Given below are the details of each sector individually.

Textiles

China has
recently adopted a new strategy wherein it focuses more on its domestic supply
with increased cost. This has led to a shift in the global textile companies
from China to other nations. India’s home textiles exports to the US market have
seen an increase for terry towels and bedsheets which is 34% and 39.25%
respectively in 2020. The share percentage for China has come down to 17.16%
and 18.53%. As per reports, India could not grab the market shares in apparel
exports. Some agencies are of the opinion that in the case of home textiles
India is a preferred choice in the world as it has adequate raw material supply
but when it comes to apparel share in global exports, India has a lower share
as compared to other ASEAN countries due to low-cost benefits and more
inclination towards the Chinese players. An increase in the demand has led to
an increase in capacity utilization or outsourcing for Indian manufacturers.

In recent terms,
the US and the European countries have shown their preference for ESG
compliance while sourcing their exports. Garment exporters in India are excited
to meet the ESG expectations of these countries but the exporters who deal in
dyeing and pigments might take longer to comply with the ESG norms as the
associated cost is higher. Overall, the number of inquirires and orders has
increased in India. Also, a good amount of investment in the manmade downstream
operations is required so that the overall market share in the global apparel
trade can be increased. The players who are already a part of man-made textiles
can be benefited if the government provides financial help and if some trade
agreement is signed with the large importers that include the UK, the US, and
the European Union.

Auto Ancillaries

As the domestic
demand of the auto ancillaries increase and global de-risking from China over
the medium to long term is observed, the auto ancillary sector is expected to
grow, according to Ind-Ra. China has experienced a contraction in its exports
due to the trade restrictions due to which Indian exports saw a rise. India
also managed to sustain its import share despite the global slowdown in the
auto industry.  India has also seen an
increase in the number of International purchasing offices. It is also believed
that India a safe alternative source to the global automotive companies. The
domestic demand in the country is also expected to improve in FY22. This is due
to the preference for personal vehicles among the masses, the thrust on
infrastructure and construction spending, and due to increased perceived risk
of infections from public transport.

The industry is
dependent upon imports of those electronic components that require more
expertise to localize. As per the data, a third of the domestic auto component
industry turnover is achieved from imports. Also, it is expected that the auto
component sector will be benefited with the production-linked incentive scheme
of Rs 570 billion. According to the agency, if Indian manufacturers improve
their focus on R&D investments and cost competitiveness, then they can be
benefitted with the current trend of de-risking. Other Southeast Asian
countries like Indonesia, Thailand, and Vietnam won’t be able to pose a
challenge on Indian manufacturers in such a case.

Pharmaceutical
sector

Indian
pharmaceutical was highly dependent on China as 70% of its raw material came
from China. The global pharmaceutical companies have been affected as the
supply of raw material has been disturbed after the pandemic. MNCs have now
started looking for options other than China who can offer raw materials at low
cost. As per Ind-Ra, India is a reliable and stable option as it has
API-approved plants, good chemical skills, and a 50% market share in drug
master filings with USFDA. As per the data, India is the third-largest exporter
of pharmaceuticals. Indian pharmaceutical export is $24.4 billion and it has
increased by 18.7% in FY2021.

Also, as FDI
increased, the exports also increased. The agency is expecting the
pharmaceutical companies to keep their R&D expenses minimal and maintain
Capex till FY2023. The government has also incurred a total quantum of
incentive of Rs 150 billion as a part of the production-linked incentive
scheme. This is done to reduce the dependence of India on China.

Chemicals

As many production-linked incentive schemes
have been introduced in agro/food-processing and pharmaceuticals industries,
the sector shall see some benefits. India is a big exporter of dyes and
pigments. As the manufacturing capacity of chemicals dropped in China, Indian
exports in the same sector saw a rise. With the push to realign the global
supply chains in the medium-term, India saw a positive sign. The chemical
manufacturers will be benefitted due to growth in domestic and global demand,
increased import substitution, and move to de-risk the supply chains away from
China.

It is believed
that Chinese manufacturers will hold a significant position in offering raw
materials across the industries even after the multi-national companies will
diversify and move production facilities to countries like Vietnam,
India, and Southeast Asian nations. China has been the hub of the global supply
chain due to low taxes and low labour costs. But the COVID-19 has disrupted the
entire scenario. India might pick up pace due to the factors like low-cost
production and better economies of scale.

Source – India Ratings & Research

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Also Read:

https://indiantextilejournal.com/latest-textile-industry-news/ind-ra-reports-rise-in-fibre-production-for-nov-2020

https://indiantextilejournal.com/techinical-textiles/slower-growth–but-economic-revival-hopeful

https://indiantextilejournal.com/latest-textile-industry-news/impact-of-2nd-covid-wave-to-be-less-severe-on-textiles

 

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