Exit the dragon: Gujarat industries attract the world

AHMEDABAD: Stiff competition from Chinese manufacturers has remained the bane of Indian industries, including those in Gujarat. However, over the past year, global players have been eyeing alternatives to China for industrial procurements by adopting the China+1 strategy. In India, Union and state governments have announced a slew of policies incentivizing manufacturing and local players are scaling up operations and diversifying their product portfolios. At a time when manufacturing is hit as parts of China continue to be under strict lockdowns amid a drought, Gujarat entrepreneurs are smelling an opportunity and revving up for export orders.
“The industry and the government share an agenda: to insulate Indian manufacturers from global economic uncertainties, reduce import dependence, and boost exports. The Centre has been announcing measures as part of the recently rolled out production-linked incentive (PLI) schemes,” said Pathik Patwari, president, Gujarat Chamber of Commerce & Industry (GCCI). He added: “For their part, manufacturers are improving product quality, reducing costs, and diversifying as needed to suit the global demand. ”
Industry leaders said that even exporters who have ceased to procure from China or have moved a significant part of their domestic supply chains away from there are eyeing India as a potential sourcing market. This is true for sectors such as apparel, specialty chemicals, pharmaceuticals, auto components, and solar PVs.
Dehydrated onion, peanut exports rise
As parts of China grapple with severe drought and heatwave, about 2 million hectares of agricultural land across nine provinces has dried up, impacting the harvest of onions, peanuts, potatoes, and green vegetables. China’s loss is Gujarat’s gain.
Dehydrated onion exports from Gujarat stood at 84,782 MT in 2021-22 according to Agricultural and Processed Food Products Export Development Authority (APEDA). The first quarter of 2022-23 alone reported exports of 25,540 MT. Manoj Ram, president, All India Vegetables Dehydration Association, said: “The exports of dehydrated onions rose 15-20%, propelled by the demand from Europe. The demand for garlic and onions is growing. ”
In 2020-21, groundnut oil exports from Gujarat crossed 2. 25 lakh MT due to the flood situation in China, said Samir Shah, president, Gujarat State Edible Oils and Oilseeds Association (GSEOA). He added: “This year, we are expecting more business. Ahead of the October-November season, inquiries have already started pouring in. We expect good demand for peanuts and hope to surpass the 6 lakh tonnes mark. ”
A rise in demand for both the products is expected from European, African, Gulf, and Southeast Asian countries.
RMG exports surge, sourcing from India revivesDehydrated onion, peanut exports rise
With key textile and apparel brands of Europe and the US moving away from China in sourcing readymade garments (RMG), Indian manufacturers are benefiting. According to the data of Confederation of Indian Textile Industry (CITI), RMG exports surged 17% from April to August 2022 as compared to the same period in 2021.
Rahul Mehta, chief mentor, Clothing Manufacturers’ Association of India (CMAI), said: “Be it the ceasing of procurements from Xinjiang province or finding an alternative sourcing partner, global brands are looking at moving out of China. ” He added: “Indian, particularly Gujarat-based, manufacturers of RMGs are gaining. ” He said the rise in exports in the first quarter suggested a revival of interest in India.
Mehta, however, did acknowledge that a rise in labour costs and skyrocketing cotton prices in India are proving to be major impediments for Indian manufacturers in leveraging the growth in demand. “The situation will ease to a great extent once fresh cotton crops arrive and the price pressures cool off,” he said. “The government has addressed the issue of improving the scale of operations through the PLI scheme and parks. ”
Growing local capacities propel exports of specialty chemicals
Gujarat-based specialty chemicals companies have been recording an increase in export inquiries since the Covid outbreak, backed by the China+1 strategy adopted by multinational companies. The state is home to many chemicals manufacturing units and the changing global economy will benefit the Indian chemicals sector in the coming years.
Vinod Agrawal, past chairman of CII Gujarat, said, “Gujarat based specialty chemicals manufacturing companies have started supplying many products for our global clients over the past three years. European countries are under pressure due to high energy prices.” Agrawal added: “So, other global players are turning to the ‘Europe+1’ approach. With local capacities increasing here, manufacturers are getting fresh orders.” Global companies’ supply chain managers are working to diversify their procurements and India is their first option. Logistics costs have increased globally so India is at an advantage because more European companies have started sourcing from India, said a leading manufacturer
Domestic investments in APIs: Pharma sector boom looms
To reduce its import dependence on China, pharmaceutical companies in Gujarat have keenly focused on investments in manufacturing active pharmaceutical ingredients (APIs) locally. Gujarat is home to at least 5,000 pharmaceutical manufacturing units.
Adding capacities and technology to manufacture APIs will aid Gujarat’s pharma industry — a major global supplier — in becoming self-reliant. Industry players said that self-reliance will make the Gujarat pharma sector a global supplier of APIs, a position currently held by China.
IDMA national president, Viranchi Shah, said: “Under PLI-I and PLI-II schemes, molecules for APIs that can be incentivized have been identified. ” He added: “Significant investments in APIs are underway with land and machinery already being procured. ” He went on to say: “With India and Gujarat being the pharmacy of the world, API exports will be the next leap for industries. ”
According to industry players, the process of setting up plants began six months ago. At least 200 pharma companies in Gujarat have invested in API manufacturing since the Covid-19 outbreak.
Sources said that several pharma retail firms in the US and the EU are making efforts to shift supply chains away from China and India is a preferred sourcing market. “In the next year and a half to two, one will witness a decline in import numbers and a rise in exports,” said a source.
IDMA is encouraging Indian pharma manufacturers to leverage the 20% incentive for manufacturing APIs using the fermentation process, rolled out under the PLI scheme. “APIs are currently synthesized through chemical processes. The fermentation process is highly capital intensive and the stakes are high for companies,” Shah said. “Therefore, most players are reluctant to expand in this sector. Some companies, however, have come forward and when more do, Gujarat can surely lead the way in cutting import dependence for APIs. ”