Chemical industry's perspective on 'Make in India': Sudhir Shenoy

India is in the midst of a massive wave of urbanisation – according to McKinsey India, over 10 million people move to cities annually in search of employment. Change has been long overdue for a country that largely skipped the industrialisation phase of development, going directly from an agricultural economy to one based in services.
 
Recently, the Government of India (GOI) has put its weight behind refurbishing manufacturing sector across 25 industries through the ambitious ‘Make in India’ project. Under this project, GOI has set an ambitious plan of increasing the share of manufacturing in GDP from 16 per cent to 25 per cent by 2022. Simultaneously, the government is also focusing on attracting foreign direct investment and improving infrastructure. This essentially means that we are ushering in the era of industrialisation, a step in evolution that we had skipped before. The time for the chemical industry to realise its far-reaching potential in India, is now.
 
Tip of the iceberg
So far, India has not lived up to its potential in this story. Even though the Indian chemical industry has grown over 20 times in the last 17 years, it has only unearthed a fraction of its prospect. As per the FICCI Knowledge Paper, per capita consumption of chemicals in India is much lower than the western countries – for a country of 1.25 billion the industry was valued only at $ 144 billion in FY 14. The industry has grown drastically in the bulk-commodity space; however, in the specialty chemicals space we are still below the 20 per cent mark. 

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According to Planning Commission, India’s share in export of global chemicals is less than 2 per cent. In terms of finished goods, the domestic manufacturing industry has grown by 4 per cent in the last three years whereas the imports have grown by over 20 per cent for the same period. The good news in all this is that we can still turn this story around. The industry needs to come together, reflect and renew our strategy and follow three simple steps. ie look up, look out and look good to make the most of the opportunity.
 
Look up: Nurture the domestic demand
It is evident that the future of India's chemical industry will be dominated by specialty chemicals. McKinsey India projects that the sector has the potential to grow to a size of $ 100 billion, from $ 22 billion in FY 13. India has a strong consumption capability and we have not been able to exploit the opportunity for presenting value-added products or customised innovations for these consumers. As we start focusing on application-development, the feedstock constraints become slightly less relevant. There is ample opportunity to innovate even for the bottom of the pyramid and reach-out to the consuming classes and achieving competitive cost position.
 
To give you an example – bar soap is predominantly available in developing economies; India is one geography where bar soaps are more popular than their liquid counterparts. While, one would typically believe that consumer at the ‘bottom of the pyramid’ looks for a no-frills product, Dow has proved otherwise. With a keen focus on application development, a bar soap was created that does not disintegrate easily, gives a camouflage effect and renders the skin softer. Interestingly, even this section of the market is willing to pay an additional price for better functionality of the product.
 
Look out: Create sourcing options from India
There seems to be global shift towards Asia as the world’s chemical manufacturing hub. While China dominates in the manufacturing revolution, countries like Singapore, South Korea and Thailand have taken mammoth strides in establishing themselves as low-cost sourcing options. Even Malaysia has made strategic investment in enabling manufacturing establishments since 2011.
 
Despite ample labour force, India is not a low-cost outsourcing option when compared with China and other emerging markets. This needs to change. By channeling available resources and exploring bio-based fuels, countries like Thailand and Singapore have emerged as hubs for the chemical industry without significant feedstock advantage or domestic demand.
 
However, at this point of inflection for the industry, we can explore many alternative feedstock options - coal gasification, syngas, pet coke, etc. With the right technologies and support from the government, the challenge of feedstock can be mitigated.
 
Look good: Solutions for human progress
The ability to connect science with innovation to help address many of our nation’s problems lies with this industry alone. With chemistry everywhere, this industry has developed and continues to develop a range of products from food to infrastructure to address everyday needs of the people. Sadly, world over, chemicals industry has acquired the reputation of being a ‘toxic industry’ and a pollutant. In reality, it is the only industry to have consolidated answers to the world’s sustainability concerns.

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The case in point could be food security. At a time when over one-fifth of the population in India, urban and rural, lives under the poverty line and is estimated to be malnourished, over 40 percent of India’s agricultural produce perishes because of the lack of proper packaging. As an agrarian economy, India can be food secure and play a vital role in global hunger mitigation. The chemical industry can address these issues in varied manners – the agro-chemicals sector can play an important role in providing innovative and sustainable solutions to enhance farmer’s prosperity; the packaging portfolios can reduce loss of produce during transport, enhance shelf life, manage-moisture, from the farm to kitchen. Additionally, the ‘water solutions’ can optimise the usage of water in crops and explore avenues for re-use of water in drought prone areas.
 
In coming years, India will rise as both - a manufacturing capital for valued goods and well as a consumer-driven economy from a broader perspective. The country will grow at 7.5 to 8 percent over the next three years; the chemical industry typically grows one and half to two times of the GDP, which is at a rate of 15 to 20 percent during the period.
 
India offers huge production and consumption market for chemical companies, however conversion of this potential into market reality depends on the success of the recent government initiatives to create favourable conditions to enable global and Indian firms to invest in manufacturing facilities.
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Sudhir Shenoy is the CEO of Dow Chemical International Pvt Ltd (Dow India)