Growth of Chinese Exports to India to Slow Down: A Possible Result of Revised Agrochemical Regulation?

Each year, India imports close to USD 925m in agrochemical technicals, intermediaries, and finished products—of which around 55% comes from China. Of the total imports from China, the proportion of finished products has been steadily rising. Imports from the country grew at a CAGR of 6% from 2007 to 2017. And this growth was expected to continue, given the lower production cost advantage Chinese producers had. However, new agrochemical regulation proposals by the Indian government have now put a halt to any further increases.

Photo of plant sprouting

The proposed changes state that companies will no longer be issued import registrations for products that have a manufacturing registration in India. Below, we present two possible scenarios which could emerge as a result of the new legislation. Although trading companies are actively lobbying against the first scenario, we think it likely that it will prevail, given that most MNCs and tier-1 players seem to have few qualms. 

Scenario 1: if the regulation is strictly followed ‘as is’

1.    The growth rate of agrochemical imports from China (which grew at a CAGR of 6% from 2007 to 2017) will decline by 80%, thereby increasing at a rate of ~1.2% annually to 2022. A large proportion of imports will shift from formulated products to raw materials.
2.    Backward integrated companies will benefit, as they gain from having manufacturing assets. Going forward, they will be in a position to contract manufacture for other non-integrated players and MNCs. Integrated companies will further invest in manufacturing facilities, as newer off-patent products are introduced into the Indian market.
3.    Trading companies heavily dependent on formulated imports from China will be hit the hardest.
4.    Some of the companies who have the TIM (Technical Indigenous Manufacturing) registration will enjoy a monopoly in the domestic market, as other players will not be able to compete by offering the same product through imports—until they too can attain a TIM registration and manufacture in India. This will be a further positive for backward integrated players.

Scenario 2: if the regulation allows for some exceptions for finished product imports from Chinese sources

1.    The growth rate of agrochemical imports from China will decline by 50%, thereby increasing at a rate of ~3% annually to 2022. This is when imports of N-1 (where N is the formulated product, so it is a product that needs one processing step in order to become a formulated product) are allowed to be imported by Indian players.
2.    This will not trigger many additional investments by agrochemical players in India, as some of them will still manage to import an ‘almost finished product’, and pack and sell in India.
3.    The import growth rate will still slow from existing levels, as backward integrated companies will prefer to strengthen their manufacturing for any new product introduced in India, while they may still continue to import N-1 for their existing products.

Ongoing imports from China may also be hit if some companies importing from the country decide to give up their import registration and continue manufacturing in India. This will mainly apply to some of the newly introduced products in the Indian market—and not for highly generic products. As most products imported from China are generic molecules, we don’t expect the variation to be more than 5% (limiting imports from China to USD 485m) in the current year. 

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