India’s chemical industry is likely to touch $214 billion (approx Rs 13, 91,000 crore) in the next four years from $139 (approx Rs 9, 03,500 crore) in fiscal 2014 with estimated growth of around 9 per cent a year amid growing demand scenario.A Tata Strategic Management Group study noted that factors such as boost to specialty chemicals and pharmaceuticals segment, low per capital consumption including agrochemicals, likely growth in demand from paints, textiles and diversified manufacturing base would act as key driver for the growth of the sector.
Key imperatives for the growth of chemical industry are to secure feedstock, right product mix and identify partnership opportunities to gain capital and technology support. The report outlines the demand-supply scenario over the next 5 years and also the key growth drivers. Presented at the FICCI-organised IndianChem Gujarat Conclave 2015, the report titled ‘Chemicals – A way of life’ was released by Chief Minister Anandiben Patel at Mahatma Mandir in Ahmadabad. The demand growth will be primarily driven by domestic consumption because per capita consumption of most of the chemicals is much lower than global averages.
Moreover, with a very strong outlook for the key end-user industries the demand of chemical products is expected to surge in the coming years, the report noted.The report also highlights critical issues the chemical industry is facing today like, availability of key feedstock, infrastructure status, scale of operations, access to technology, energy security and ease of doing business.The Indian chemical industry is among the established traditional sectors of the country that play an integral role in the country’s economic development. This sector forms a part of the basic goods industry and is a critical input for industrial and agricultural development.
The Indian chemical industry is one of the oldest industries in India and has made immense contribution to the industrial and agricultural development.. It encompasses both large and small-scale units. The fiscal incentives granted to the small-scale units in the mid-1980s provided the thrust to the growth of MSMEs in the sector. The chemical industry serves the needs of sectors such as textiles, leather, plastics, paper, printing inks and food stuffs, among others.The chemical industry is among the most diversified industrial sectors and includes basic chemicals and its products, petrochemicals, fertilisers, paints, gases, pharmaceuticals, dyes, etc. The sector covers over 70,000 commercial products, and provides the feedstock to many downstream industries such as finished drugs, dyestuffs, paper, synthetic rubber, plastics, polyester, paints, pesticides, fertilisers and detergents. Over the years, the industry has been evolving with a shift towards product innovation, brand building and environmental friendliness. Besides, customer focus is gaining significance in the industry.
The industry comprises both small-scale and large units (including MNCs) and produces thousands of products and by-products ranging from plastics and petrochemicals to cosmetics and toiletries. The industry consumes a significant share (around one-third) of its own production. The industry has a 14% weightage in the overall Index of Industrial Production (IIP) which gives an indication of its importance in the country’s industrial growth. A robust chemical industry ushers in many economic and strategic benefits for the nation.The Indian chemical sector accounts for 13-14% of total exports and 8-9% of total imports of India. In terms of volume of production, it is the twelfth-largest in the world and the third-largest in Asia. Currently, the per capita consumption of products of the Indian chemical industry is one-tenth of the world average, which reflects the huge potential for further growth. The Indian advantage lies in the manufacturing of basic chemicals that are also known as commodity chemicals that account for about 57% of the total domestic chemical sector.The chemical industry can be broadly classified into two segments – organic and inorganic chemicals. Organic chemicals cover over half of all known chemical compounds, and include petrochemicals, drugs, cosmetics, agrochemicals, etc. Inorganic chemicals comprise alkalis, dyes and dyestuffs.
Alkali chemicals form the highest chunk in the total chemical production in India. The dyestuff sector is one of the important segments of the Indian chemical industry and has forward and backward linkages with a variety of sectors such as textiles, leather, paper, plastics, printing inks and foodstuffs. The textile industry accounts for 70% of the consumption of dyestuffs.The share of dyes and dyestuffs and pesticides, on the other hand, remain extremely low.In the case of alkali chemicals, soda ash has been enjoying the highest share in total production.However, from 2008, the production of caustic coda has been surpassing soda ash. In the organic chemicals segment, the share of carbon black has been over 70% of the total production since FY04 whereas in the inorganic chemicals segment, out of the 19 products, methanol, acetic acid and acetaldehyde constitute over 50% of the total production.
Imports of chemicals dominate the total trade of major chemicals. Imports have been representing around 60% of the total international trade volume.
The top importing and exporting destinations are China and Saudi Arabia, and Africa. Due to the attractive incentives available to chemical producers in China, their products are comparatively cheaper in the global markets, and give a tough competition to Indian chemical players.
The exports of the chemical industry depict a sluggish performance. Around 5% of the total production was exported in 2014. The key export destinations of the chemical industry are the US, China, UAE and the UK.
In case of composition of total exports, dyes and dyestuff, which form around 1% of the total production, have been leading contribution at around 27% since FY03. The segment provides good opportunities for international trade considering its end-user industries – textiles, plastics, leather and foodstuffs.
The industry will continue to be affected by the anti-dumping activities undertaken by some countries like China. Due to the export incentives granted to producers of some countries an oversupply is created in the global market that affects the domestic players who then seek further fiscal incentives from the government.
Over the years, the industry has been implementing technology upgradation to achieve efficient production. However, the lack of technology or the deficiency of funds to promote adequate technology continues to plague the industry. Higher access to technological initiatives, fund to implement these initiatives into production process and adequate availability of trained and skilled manpower can help the industry improve its utilisation rate and achieve efficient production levels.
The government has made 100% FDI permissible and has de-licensed most chemical products except those that are hazardous in nature to drive investments in the sector.
The investment in the sector has been consistent and points towards the rising interest of investors; however, it is imperative for the companies in the sector to devise new processes and technologies, develop new products and to follow prudent environment norms to garner more investments and investor interest.
The government has taken various steps to improve the productivity and efficiency in the chemical sector. The government policies such as 100% FDI and SEZ and industrial parks model of development have also led to increase in the overall investment in the sector. Some major initiatives taken by the government for the sector are:
• The licensing requirements have been removed except in the case of hazardous chemicals. Entrepreneurs are now allowed to set up chemical industries through the Industrial Entrepreneurs’ Memorandum (IEM) route
• In order to develop the country as a major chemical hub, the government set up petroleum, chemicals and petrochemical investment regions (PCPIR). These regions directed investments for establishing manufacturing facilities for domestic and export led production of petroleum, chemicals and petrochemicals. The PCPIR may include one or more SEZs, industrial parks, free trade and warehousing zones, EOUs, or growth centres, duly notified under the relevant central or state legislation or policy. All the benefits available under the relevant legislation or policy will continue to remain available to the said zones or parks, as the case may be, forming part of the PCPIR.
Under the National Industrial Classification, the chemical industry includes basic chemicals and its products –petrochemicals, fertilisers, paints, varnishes, gases, soaps, perfumes, toiletries and pharmaceuticals.
The Indian chemical industry is endowed with availability of low cost labour. The allied industries such as leather, plastics, food processing, rubber, textiles offer huge growth opportunities in the long term for the chemical industry. Infrastructure sector has gained significant importance and is a priority focus of the government. Thus, the increased spending on infrastructure will help in reducing the infrastructural bottlenecks in the long run. However, issues like inadequate technologies, skilled labour, environmental norms and need to innovate remain a threat to the industry.
Logistical bottlenecks, high raw material and fuel prices and anti-dumping activities are posing a threat to the industry in the short run. Thus technology upgradation, access to skilled manpower and funds at a reasonable cost, adequate infrastructure support and economical input costs are essential for the sustained growth and development of the Indian chemical industry. Even though the industry is currently affected by economic recession, in the long term it will benefit immensely from the high growth foreseen in its consuming industries and the improvement in export markets.