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BW Businessworld

Making India A Hub Of Chemical Manufacturing: Conquering Challenges

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The potential for growth in the chemicals segment is, undoubtedly, very large. It is expected to grow at 10 per cent to 12 per cent per annum through 2020. The Indian chemical industry accounts for about 3 per cent of global industry presently and has an ambitious target of reaching 6 per cent by 2020. The demographic dividend that India is enjoying should drive growth across multiple industrial and consumer segments.

Growth in India's chemical industry will be driven by speciality chemicals, partly because the country is poorly endowed with hydrocarbon resources to build a globally competitive commodity chemicals industry. Given the large pool of talent - scientific and managerial - available in the country and vital for building a knowledge-based speciality chemicals business, this segment is likely to witness higher growth. Further, no intense competitive pressures exist as they do in commodity chemicals, though the growth may be stifled due to lack of availability of key feedstocks at competitive price.

However, converting this large potential into actual growth could prove to be a daunting task if problems like lack of infrastructure; feedstock constraints; higher cost of utilities, a negative image and some emerging ones like emergence of trade blocs & free trade agreements; are not addressed in a holistic manner by all the stakeholders.

Key areas of growth for the speciality chemicals, besides the opportunities in the domestic market, are exports and development of research hubs. India has the potential to grow its speciality chemicals business to a size of $100 billion, from $22 billion now (CII McKinsey report on Building a Global Scale Specialty Chemicals Industry in India).

As energy costs increase and water availability becomes a concern, chemical companies would have to explore strategic energy and water management. Expediting the Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs) in India would help create a cluster and help overcome challenges related to infrastructure, power and water availability. Any intention to enhance the overall competitiveness of the Indian chemical industry must be supported by immediate action on improving logistics and infrastructure support for the chemical sector, accelerating the implementation of PCPIRs, and increasing the speed of implementation of projects.

A more diversified chemical industry in India: the way forward
India has the potential to be a chemical hub; if integrated port based clusters are developed. Specialty Chemicals have a bright future if we develop good environmental and safety standards for user industries. Low cost energy and feed stocks are required and exploration for oil and shale gas should be expedited.

There are a range of chemicals for which demand in India has now risen to an extent to justify one or even two world-scale plants. But investments are simply not happening due to lack of access to basic raw materials such as ethylene, propylene, butadiene, benzene, toluene etc. The narrow polymer/fuel business model of feedstock providers has meant that the chemical industry in India has lacked a diversified outlook.

The CII Report on Key Feedstock for Speciality Chemicals analyses the current status of the Indian industry with regard to ten raw materials or groups that are critical for a range of speciality chemicals and offers substantial grounds for manufacturing at least ten key raw materials in India.

Government Support: Need of The Hour
The industry is at the crossroads where it can propel itself into next orbit of growth, provided there is an overall growth in the economy as well as government policies for the sector provides the requisite support. Some of the key areas of support are: 
  • Setting the standards for performance in areas ranging from fuel efficiency of cars to energy consumption in buildings to provide a leg-up to speciality chemicals consumption
  • Help creating and facilitating world-class infrastructure and dedicated hubs for development of the industry
  • Rationalize taxes and duties for feedstocks and basic building blocks for the downstream chemical products should be preferably at zero duty
  • Correction of inverted duty structure - The import duties levied on raw material are higher than that on the finished product. So India imports at higher duties
With the challenges conquered through a sustained effort by all the stakeholders, there seems to be nothing preventing India from becoming a hub of chemical manufacturing and also being present across the complete value chain in chemicals among Asian countries.

The author is chairman of CII National Committee on Chemicals and managing director of Godrej Industries Ltd