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Unlike many of the other emerging countries, where manufacturing has been the main growth engine (growing much faster than GDP), India banked on services sector to fuel its economic development. As a result, in spite of registering a healthy average GDP rate of 8-9 percent during 2005-2012, the manufacturing sector's contribution to the GDP remained stagnant at 16 percent. Realising the importance of manufacturing to provide sustainable livelihood to growing population, the new government is taking steps to revitalise the sector by setting the juggernaut rolling with the Make in India initiative.
To make India a global manufacturing hub, the government will have to create conducive environment for a thriving eco-system wherein suppliers to product manufacturers can also flourish. One of the key components of this ecosystem is chemicals, which go into every product that one can imagine. In fact, development of any economy or country is directly linked to the per capita consumption of chemicals.
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“Chemical industry is a key enabler for other industries. As chemicals are consumed in varying proportion by every industry (rightly from electronics to paints, from pharmaceuticals to cosmetics), without chemicals sustainable development of other sectors is not possible,” said Surjit Kumar Chaudhary, secretary of the Department of Chemicals and Petrochemicals (DCPC), at a recently held industry conference.
However, ground realities are different. In spite of showing strong growth in production of consumable goods & products, India has remained a net importer of chemicals. Growth of imports has outpaced exports and the net chemicals imports have grown at about 20 percent CAGR during FY09 and FY13. This needs to be corrected.
Offering a touch of specialty
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Specialty chemicals play a key role in the development of new products as these chemicals help in creating product differentiation enabling the manufacturers to compete in marketplace with unique features and benefits. A case in point is paints and coatings. While 80 percent of raw materials in all paints are same and are commodity chemicals, what differentiates one company’s paint from another is the rest 20 percent (that is predominately specialty chemicals). This is the effect that specialty can have on any product, and make that product stand out in a crowded market place.
No wonder, specialty segment is one of the fastest growing sectors in chemical industry with about 15 per cent per annum growth rate. Despite this fact, the per capita consumption of specialty chemicals in India is one of the lowest in comparison to developed and other emerging markets.
Climbing the supply chain ladder
Often, countries with economies in transition witness increase in consumption of specialty and fine chemicals. This gradual shift is clearly visible in countries like China, India and Middle East. With focus on improving products and usage intensity of specialty chemicals, experts feel the industry is poised for strong growth in India.
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Long seen as challenging and lacking scale, India’s specialty chemicals potential is increasingly being recognised at the global level. India's share in global specialty chemical industry is estimated to grow from about 2.8 percent in 2013 to 6-7 percent in 2023 with market size in the range of $ 80-100 billion.
India stands out as far as demography and availability of technical man-power is concerned. Specialty chemicals industry, just like IT and pharma, stands to gain rich dividend from this. The critical success factor for the industry is its capability to provide product/application development at a favourable price-performance ratio.
Major cost centre in the industry is not feedstock or raw material, but product development and marketing activities. Specialty chemicals industry is not much about economies of scale (like in case of commodity chemicals), but about economies of scope as same product (specialty chemical) can be used for multiple applications. The scope is vast, limited only by one’s imagination. Companies can use specialty chemicals to develop new products to give them competitive edge in the market place.
Leveraging India’s advantage
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“With specialty chemicals becoming obsolete very fast due to high competition, companies have to invest heavily in R&D to develop applications to meet the evolving consumer needs. Companies have to adopt inter-disciplinary approach to research. Today, micro-organisms are helping develop specialty chemicals of unique nature in environmentally friendly way. Indian companies can collaborate with global firms to jointly manufacture specialty chemicals in the country. This will act as an enabling factor for the Make in India initiative,” said Deepak Bhimani, president of Indian Speciality Chemical Manufacturers' Association (ISCMA), and CMD, Navdeep Chemicals.
When it comes to specialty chemicals, India is not as handicapped as compared to commodity chemicals. This is because while commodity chemicals rank high in hydrocarbon supply chain (remember India imports majority of crude – the basic starting material for chemical industry), specialty chemicals are placed at bottom of the chain. Hence, in spite of inadequate supply of domestic hydrocarbon resources, India still can play a dominant role in the global specialty chemicals industry as it has got advantage of skilled human resources and a big consumer market.
Mega trends having an impact on the specialty chemicals industry are: