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Diversification to benefit Indian exporters: Ind-Ra

Jun 09, 2021
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).

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.


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.


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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