Conducive policies can make India a global chemical manufacturing hub

Growing middle class, rising demand for differentiated consumer products, low per capita consumption of chemicals (compared to even other emerging markets), etc are driving the consumption of specialty & other chemicals in the country. In spite of this India is a net importer of chemicals. The reason for this is when it comes to cost competitiveness (for majority of chemicals) India lags behind its Asian counterparts – especially China and other South East Asian countries. The government needs to work on removing bottlenecks (such as availability of feedstock, faster approvals, simpler tax regime, improved compliance with global quality & safety standards, better infrastructure, etc) to facilitate domestic manufacturing to achieve the objectives of its ‘Make in India’ initiative, according to industry experts at the Chemical Weekly’s annual business outlook conference in Mumbai held from April 14-15, 2015.
 
“India’s share in the global chemical industry is about 2 percent. When it comes to outsourcing, India is not a low-cost sourcing option compared to China and other emerging markets. To gain competitive cost position (especially in commodity or base chemicals), you require certain critic mass. Inadequate infrastructure and lack of availability of low-cost feedstock are the two major challenges that India needs to overcome to gain competitiveness globally,” said Sudhir Shenoy, CEO, Dow Chemical International Pvt Ltd.
 
Inverted duty structure, wherein the import tax on finished products is lower than that on raw materials/inputs, is also affecting the competitiveness of local manufacturers. “Multinational companies have positive perspective about India. However, imported products still account for a large share of their sales in India. Having a growing middle class population is not enough for global companies to pick India as their manufacturing hub. The government should provide conducive conditions with regard to ease of doing business, global quality standards, simpler & uniform tax regime, consistency in policy & regulatory environment, availability of low-cost raw materials, etc for encouraging domestic manufacturing,” commented Dr Stephan Pilz, VP - Region Development (India), Evonik.
 
Though country offers large number of English-speaking work force, lack of technically skilled manpower and high energy cost are other stumbling blocks on the way to achieve the objectives of Make in India campaign.
 
However, industry is optimistic about the new government and expects it to initiate much needed reforms to boost manufacturing. “With a slew of policy initiatives undertaken by the new government, the economic should pick up growth thus leading to higher demand for chemicals in the country. For example, Government has announced an ambitious 100 smart cities programme. Even if some of these smart city projects take off, it will open up floodgate of opportunities for chemical manufacturers. The industry has the potential to grow at 1.5-2 times the GDP growth,” said Shenoy of Dow India.
 
For encouraging mass scale manufacturing, the country will have to identify the right types of chemicals as there are fears of excess manufacturing capacities in China which can flood the Indian markets. Take the case of propylene oxide, the demand for which is growing at a rapid pace. However, the country is unable to meet this demand due to supply constraint of the major raw material propylene (which in spite of being produced in high volumes in the country is mostly used for captive consumption). So there is a scope for setting up propylene plants in India.
 
With respect to energy, experts felt that India will have to explore unconventional and renewable resources to power the country’s growth engine. According to Arvind Lali, Prof of chemical engineering, & Head, DBT-ICT Centre for Energy Biosciences, Institute of Chemical Technology (ICT), India can leverage on biomass to meet its energy and, even, feedstock requirement for chemical industry. He stated that there are technologies available for converting biomass (especially agri-waste) to chemicals and India could benefit from it as the country generates large quantity of agri-waste, which can be put to good use.
 
India offers huge consumption market for chemical companies, however the government will have to create favourable conditions (ie, in terms of policies & infrastructure) to entice global and Indian firms to invest in manufacturing facilities in the country.