PMFAI Responds to Indian Government’s Industrial Policy Draft
The Government of India is working on its new industrial policy (2019) and invited suggestions from the Pesticide Manufacturers and Formulators Association of India (PMFAI). The government’s goal is to have the Indian economy reach US $5 trillion by 2024-25 with contribution from the manufacturing sector of US $1 trillion.
As far as the chemicals and pesticide industry is concerned, some of the policies have adversely affected the growth of the indigenous chemical and agrochemical manufacturing sector. Excessive imports in the chemicals sector has been a great cause of concern to the country and its economy. The surge in imports has led to a widening of the trade deficit.
To achieve the US $5 trillion target, policies for promoting and supporting the manufacturing sector in India are key. PMFAI has made recommendations to the Ministry of Commerce and Industry, Government of India, to adopt policies. What follows are the suggestions PMFAI has requested.
Recommendations for Inclusion in the Industrial Policy Draft, 2019
To achieve the target of US $5 trillion Indian economy by 2024-25, promoting and supporting indigenous manufacturing sector is very important. This will ultimately increase our exports. Restricting excessive imports is another area that ultimately attracts investments in the indigenous manufacturing sector. Increase production capacities will not only boost the economy but will also create more employment opportunities for Indian citizens.
Today, India is the fourth largest producer of agrochemicals/pesticides in the world, after the U.S., Japan, and China, with a market size of Rs.35,000 crores (US $392.77 million), out of which more than Rs.15,000 (US $168.3 million) worth of pesticides are exported to global markets mainly by Indian MSMEs and Rs.20,000 crores (US $224.4 million) worth of domestic consumption. If the government makes policy changes for (1) compulsory registration of technical grade pesticides in India prior to granting registrations for imports of formulations; (2) increase customs duty on imports of finished pesticides formulations; and (3) export registrations are fast tracked with minimum data requirements; then India can become No. 2 in agrochemical production in the world by achieving total production worth Rs.50,000 crores (US $561 million) with exports over Rs.25,000 crores (US $280.5 million). Given below are our proposals in detail for your consideration:
1. Policy be made for compulsory registration of technical grade pesticides in India prior to granting registrations for formulations imports. This will support the vision of “Make in India” attracting new investments in the sector and increase exports of agrochemicals from India regulations for pesticides registration in India is governed by Insecticides Act, 1968 and Insecticides Rules, 1971.
Until the year 2005-2006, registrations for technical grade products and formulations were given simultaneously under Section 9(3), which qualified Indian manufacturers to apply for registrations u/s 9(4) “me too” registration. But from 2007, registration authority viz. Ministry of Agriculture and Farmers Welfare & Central Insecticides Board & Registration Committee (CIB&RC) adopted policy guidelines for granting registrations for imports of readymade pesticide formulations to the country without registering technical grade pesticides in India, which badly affected the growth and progress of Indian pesticide industries. The policy resulted in no investments in new plants in the last 10 years by large-scale companies to manufacture technical grade pesticides in India. This has also led to many MNCs closing their technical manufacturing plants in India and importing finished pesticides formulations in large quantities, contrary to the concept of “Make in India” to promote indigenous manufacturing.
Technical grade pesticides are the basic manufacturing use products which goes in formulation manufacturing. When importers are allowed to import finished products without registering technical grade products in India, the policy discourages registration and manufacturing of technical grade products locally which hampers growth of the indigenous manufacturing sector. This particularly affects growth of MSMEs who are mainly involved in formulation manufacturing in India and key to increasing exports. Currently, there are more than 1,000 formulation manufacturing units in India, which are mainly MSMEs.
We appeal to the government to take necessary steps to adopt policy that mandates compulsory registration of technical grade pesticides in India prior to granting registrations for formulations (import or indigenous manufacture), as is prevailing in major agricultural nations like the U.S., Europe, Brazil, China, Australia, Argentina, etc.
2. Appeal to adopt policy to increase customs duty on imports of “finished pesticide formulations” to control excessive imports which put growth of the indigenous manufacturing sector in great danger. Excessive imports in the chemicals sector has been great cause of concern to the country and its economic growth where huge amounts are lost in foreign exchange.
Kindly note that uncontrolled imports of “finished pesticide formulations” to the country has also been a great threat to the growth of the indigenous agrochemical manufacturing sector, particularly MSMEs who are mainly formulators of various pesticides. The existing customs duty structures on imports of finished pesticide formulations is at 10%, in comparison with prevailing customs duty structures on imports of raw material/intermediates (manufacturing use products) at 7.5%, does not leave much scope for the growth of the indigenous agrochemical sector. The country has been witnessing large-scale imports of finished pesticide formulations and chemicals, leading to a huge trade deficit in the chemical sector.
The present customs duty structures are as given below:
- Present basic customs duty on raw-materials/intermediates (which goes in manufacturing) under Chapter 29 is 7.5% ;
- Present basic customs duty on imports of technical grade material used for manufacturing, falling under Chapter 38 is 10%; and
- Present basic customs duty on imports of readymade pesticide formulations (finished product) under Chapter 38 is also 10%.
The difference of just 2.5% customs duty between raw material/intermediates and finished pesticides formulations are not enough to attract investments and encourage manufacturing in India. Unless and until customs duty structures are revised and harmonized, it will be extremely difficult for indigenous manufacturers to continue local production of pesticides formulations and all efforts of the government to attract new investments in the manufacturing sector and create job opportunities for Indian citizens will likely go to waste.
These customs duty structures are quite discouraging for attracting investments in indigenous manufacturing of pesticides formulations, as customs duty on raw material/intermediates, which in manufacturing is 7.5%; and imports of finished products of readymade pesticides formulations under Chapter 38 attracts only 10% customs duty.
To encourage and attract investments in the local manufacturing sector, we appeal the following changes in customs duty structures:
- Basic customs duty on imports of finished pesticide formulations falling under Chapter 38 be increased from current 10% to 25%;
- Basic customs duty on imports of raw material/intermediates falling under Chapter 29 be kept same at 7.5%; and
- Basic customs duty on imports of technical grade pesticide falling under Chapter 38 be increased from current 10% to 15%.
There must be reasonable variation in applying customs duty on inputs which are required for manufacturing in India versus finished products which are imported. Otherwise, the pesticide manufacturing sector in India will be at a big disadvantage, particularly MSMEs who are key drivers of the country’s economy and main employment providers for Indian citizens.
3. Technology development to reduce dependency on imports. In spite of all the constraints, India is the fourth largest producer of agrochemicals/pesticides after the U.S., Japan, and China. Presently, the Indian agrochemicals market size is Rs.35,000 crores, out of which more than Rs.15,000 crores worth of pesticide formulations are exported to global markets mainly by Indian MSMEs. India, with its strong basic manufacturing set up and process know-how, offers quality pesticides formulations to world markets.
But the major challenge faced by the Indian pesticide industry is in developing technologies to manufacture technical grade pesticides (active ingredients) and key intermediates and chemicals required to manufacture technical grade products. Presently, the majority of the intermediates are imported from other countries, mainly China. So, the aim for the country should be in achieving self-reliance in creating technologies for (1) indigenous manufacturing of technical grade pesticides used in manufacturing pesticide formulations; and (2) manufacturing key intermediates used to manufacture technical grade products.
To achieve the goal of Make in India, our first priority should be marginalizing imports wherein huge amounts of foreign exchange is lost. We also need to reduce dependency on other countries for technologies/active ingredients for agrochemical formulations. Premier chemical research institutions under the Government of India, like CSIR can help in creating technologies indigenously and offer commercialization to Indian industries. This can make Indian industries competitive in global markets.
The Government of India should adopt policies and provisions to support and develop assistance for indigenously developing technologies for intermediates and technical grade pesticides through its premier chemical research institutions under CSIR.
4. The National Green Tribunal (NGT) Orders based on CEPI assessment and pollution mitigation measures will lead the nation to “Economic Collapse”. The chemical industry in India is very much concerned about the recent development due to environmental measures initiated by central and state pollution control boards on the basis of National Green Tribunal (NGT) order based on the CEPI (Comprehensive Environmental Pollution Index) assessment.
The chemical industry is facing a big disruption due to the NGT moratorium, which can lead to an economic crisis. Chemical industries have already started to close down in Vapi, Gujarat. Please note that 50% of chemicals are produced in Gujarat and 20% in Maharashtra. More than 90% of chemical industries are located in industrial estates.
We have to bring to your notice that the method of a CEPI score at various industrial clusters is not scientifically worked out. CEPI is a scientifically flawed method to assess environmental quality arising from industrial activity. CEPI involves overall assessment of environmental status of an area, which may be due to a contribution from multiple pollution sources such as industrial, vehicular, generator sets, municipal and other solid wastes, sewage etc. A CEPI-like pollution measure index does not exist elsewhere in the entire world and needs immediate corrective steps.
Already the manufacturing sector of the country is in shambles and GDP is at its lowest growth in the last six years. On one hand, the government is talking about promoting the concept of “Make in India” and encouraging the indigenous manufacturing sector. But on the other hand unscientific measures are adopted by authorities leading to industrial distress. Is this the way where the country is moving?
As the current pollution mitigation measures are initiated due to the NGT order, which is based on CEPI scores, there is a need for an immediate re-visit to the methods adopted. Until then, NGT directives should not be implemented. Otherwise it will have a huge impact on industrial activities and GDP, employment, health care, agriculture, etc.
5. Export registrations be made fast track for technical grade pesticides and formulations with minimum data requirements, also considering data available in public domain which is global practice. Increasing exports of pesticides is key for progress of the indigenous agrochemicals industry, as well as for earning valuable foreign exchange for the country. Over-regulation will adversely affect exports of pesticides from the country.
Export orders for pesticide formulations are very time-bound depending upon the agriculture season in different countries and timely delivery is very important. Otherwise customers will look for suppliers from other countries. All importing countries have their own regulations and registration requirements for imports and to ensure quality and safety of the products imported, which each exporter has to go through to meet importing country’s registration norms. Therefore, imposing unnecessary data requirements and raising unqualified deficiencies for export-oriented products will only help add to costs and delays in exports from the country. Data available on public domain will also be accepted by the registration authority for exports, as export orders are country specific.
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