Chemical Industry in India The Indian Chemical Industry is Poised for Substantial Growth

Editor: Gerd Kielburger

India has the potential to become a global chemical manufacturing hub if the government and domestic players rise up to the challenge.

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The Indian chemical industry is facing tremendous growth opportunities, coupledwith stiff competition. (Picture: Shutterstock)
The Indian chemical industry is facing tremendous growth opportunities, coupledwith stiff competition. (Picture: Shutterstock)

With projections hitting the US$ 200 billion-mark by 2020, the Indian chemical industry is standing at a very critical juncture, where immense growth opportunities coupled with intense competition are acting as major drivers behind the dynamic growth being witnessed in certain segments.

National Chemical Policy

With an aim to gauge the competitive edge of all the segments and ensure integrated and overall long-term growth of the Indian chemical industry, the Planning Commission has set up an 18-member task force/ working group led by Arun Maira – Member of the Planning Commission of India. This Working Group on Chemicals and Petrochemicals is responsible for submission of recommendations to formulate the National Chemical Policy (NCP). When PROCESS India contacted Mr Maira’s office — although not much detail could be gathered — it was revealed that the NCP is expected to be released by middle of 2011.

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Ensuring integrated growth

According to HS Karangle – Director General, Indian Chemical Council (ICC), the Indian chemical industry is diverse having several sub-sectors such as organic and inorganic chemicals, pharmaceuticals, petrochemicals, agrochemicals, chlor-alkali, dyestuffs, intermediates and paints, among others. Till date, many policies have been formed, most of which have focussed on a particular segment. For example, pharma and petrochemical policies are already in place. There is a need for a comprehensive policy focussing on each segment of the domestic chemical industry.

The unique properties of each segment within the domestic chemical industry call for separate analysis to understand their applications and competitive edge in a better manner. Therefore, five sectoral sub-groups — Sub Group on Organic Chemicals, Sub Group on Chlor-Alkali & Inorganic Chemicals, Sub Group on Dyestuffs & Dye Intermediates, Sub Group on Pesticides and Agrochemicals and Sub Group on Alcohol-based industry — have been constituted to review the status of each sub-segment. In fact, recommendations have already started pouring in. Two meetings have been held by the Sub Group on Chlor-Alkali & Inorganic Chemicals in order to submit recommendations for the dye and pigments sector.

Mr Karangle is of the view that with the formulation of the NCP, government initiatives will get a concrete shape. It will be easier to translate meaningful initiatives into concrete policies, which often become misnomer in case of absence of such policies. He also stated that the NCP will hold several benefits for emerging segments within the domestic chemical industry like the specialty chemicals segment.

Towards 2020: Buzz around specialty chemicals

Requiring low capital investment for lower volumes of production, the specialty chemicals segment caters to a host of end-user industries. Being a highly knowledge-driven segment, specialty chemicals provide solutions to meet diverse consumer requirements. With increase in disposable income of consumers and consequent demand surge for ‘green’ or sustainable products, the importance of such high performance specialty chemicals is moving northward and so is their pricing.

According to a report released by the Tata Strategic Management Group, India has the potential to emerge as a global hub for manufacturing specialty chemicals by 2020 by atering to local needs and leveraging its growing market abroad. Agreeing with this view, SR Lohokare–Chairman, Western Region, ICC, said that India is quite well-placed in the specialty chemicals segment, where significant headways are being made. Finding usage in diverse products ranging from personal care products to dyes and paints, from food and nutraceuticals to agrochemicals, this segment has presence of both small and big players.

Growth trajectory

Estimated to be worth around US$ 27bn currently [Tata Strategic Management Group], the specialty chemicals segment is poised for significant growth. This segment was adversely impacted during the global economic slowdown. However, post-recession it has successfully returned to the growth trajectory due to growth being witnessed in several industries that it caters to such as infrastructure, automobile, and textiles among others. Currently, it is growing at 15 percent per annum [Tata Strategic Management Group], which is faster compared to other segments within the industry. Consumer demand has reached a new level altogether, requiring constant product innovation. Therefore, the specialty chemicals segment is now required to customise most products as per consumer requirements, which demands huge investment in R&D to undertake technology upgradation and ensure product innovation. Moreover, proper understanding about local needs is also vital to manufacture goods for the Indian market. To achieve this end, effective channels are required to reach out to consumers. What is an even more Herculean task is to protect the intellectual capital by having a proper regulatory framework in place and acquiring patents. In order to boost the quality and quantity, and encourage entrepreneurs to foray into the emerging segments of the domestic chemical industry like specialty chemicals, the government has come up with friendly policies. For instance, technology upgradation funds are being allocated to undertake effective R&D initiatives.

Corrective measures for future

growth

According to Ravi Kapoor – Chairman, ICC, Gujarat Chapter, although it has immense potential for high growth, the specialty chemicals segment is growing at a modest rate. It is a fact that the number of global size projects in the specialty chemicals segment — as is the case for the entire domestic chemical industry — is very meagre.

In order to increase the market share, concerted efforts have to be undertaken in the field of R&D. Being highly knowledgeintensive, the specialty chemical segment requires availability of skilled workforce to undertake continuous R&D initiatives. Although India is famous globally for having the most intelligent minds, at present, very few people are entering the field of Chemistry. This issue needs to be addressed on an immediate basis to ensure the growth of the industry.

Another major bottleneck is the lack of proper infrastructure. There is an immediate need to undertake greenfield as well as brownfield projects in order to ensure sustainable development. This holds true not only for the specialty chemicals segment but the entire domestic chemical industry.

The Indian government is planning to invest US$ 280 bn to build, subject to European and Chinese examples, six chemical clusters (Chemicals & Petrochemicals Investment Regions, PCPIR) with refineries and crackers in their centre which shall supply the necessary basic chemicals. The table above shows selected investment projects in region where the approval has already been granted. Therefore, with a number of PCPIRs coming up in India, players in the specialty chemicals segment should leverage benefits being offered by the existing and upcoming chemical clusters throughout the country. The PCPIR Policy is an initiative to keep abreast with the evolving, changing needs of the industry and acts as a window to ensure a holistic approach towards promoting the petroleum, chemicals and petrochemical sectors in an integrated and environmentallyfriendly manner. This policy is expected to fundamentally change the way industries are provided with seamless and integrated services, and represents an initiative to change with the times and to keep abreast of the evolving needs of the industry.

The PCPIR is a specifically-delineated investment region, with an area of about 250 sq km (with a minimum of 40 percent of the designated area earmarked for processing activities). This region will be a combination of production projects, public utilities, logistics, environmental protection, residential areas and administrative services. In 2007, the Cabinet Committee on Economic Affairs (CCEA), approved the Policy Resolution for setting up of PCPIRs to reap the benefits of co-siting, networking and greater efficiency, through use of common infrastructure and support services. As per the PCPIR Policy, the Government of India will ensure the availability of external physical infrastructure linkages to the PCPIR, by way of rail, road (national highways), ports, airports and telecom in a time-bound manner.

This infrastructure will be created (or upgraded) through Public Private Partnerships as far as possible, with the Central Government providing the necessary viability gap funding (VGF) through existing schemes. Overall, if the bottlenecks are addressed, Mr Kapoor feels that the future prospects look bright for the specialty chemicals segment. As a matter of fact, the Western region in India is already being considered as a hub of specialty chemicals, with the region accounting for almost 45–50 percent of the domestic chemical industry.

Mr Kapoor also authenticated this view by saying that Gujarat is performing very well in the specialty chemicals segment as the state is surrounded by several chemical formulation units.

Mr Kapoor draws attention to the fact that specialty chemicals consume less amount of natural resources, both power and water, which serves as a significant competitive edge for the segment. Moreover, intermediates required by the specialty chemicals segment are also not very expensive. Therefore, the key is to stick to the core goals to ensure long-term growth of the segment.

* The author is a member of the PROCESS India Editorial Team.

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