India is today the fourth biggest chemical market in Asia in terms of value but still stays largely behind its potential. Especially in the last five years, India was not able to benefit from the shift of chemical markets to Asia. In spite of many positive aspects like an entrepreneurial driven business, creative engineers and generally highly motivated employees today India still is a net importer of many chemicals. And even worse, over the last years imports have grown more than twice as fast as local production.
Besides the lack of infrastructure, the problems with land availability and the complex bureaucratic processes, many downstream investments can simply not be realised in India, because the adequate feedstock is missing. And, in addition, the chemical industry has other specific requirements, which have not yet been sufficiently addressed. Infrastructure needed for chemical sites for example is noticeably different from infrastructure required for an engineering industrial park.
Other Asian countries like South Korea or on a smaller scale also Thailand were able to create the necessary infrastructure in chemical complexes with good feedstock availability and thus were able to establish a stronger chemical industry with South Korea even being a significant net exporter of chemicals.
The general problems investors in India face are reflected in the World Bank report about ‘Ease of doing business’ in which India is ranked only 142nd out of 189 countries.
Due to the problems and deficiencies, India failed to attract significant foreign investments in the chemical sector. Big multinational chemical companies did not invest adequately compared to what they invest in other Asian countries. And midsize companies often avoid India because the risk is seen as being too big to invest in India because of the negative image, which is projected in their home countries and the numerous uncertainties in processing an investment which are being reported by companies who have invested already.
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Now with the change in government, the focus on ‘Make in India’ and the willingness to transform India the picture could change. If the government is really able to change the frame conditions and make investors believe that they are welcome and they will get help when needed, India has the potential to become the second biggest chemical market in Asia within the next 10 years. But only if also the right frame conditions for the chemical industry are created the investments in chemical plants will also happen in India. If the Indian government misses the opportunity to do it right, the investments to supply the Indian market will happen in the Middle East, Singapore, Malaysia, Korea and Thailand but not in India itself.
The following 6 points specific to the chemical industry need to be addressed in order to make India more attractive for investors in the chemical sector:
- Provide land in notified chemical areas through the state development corporations in order to avoid the hassle of acquiring land from private owners and go through the lengthy and uncertain process of public hearing
- Actively attract anchor investors in PCPIRs in order to ensure availability of sufficient chemical feedstock for downstream investments
- Provide the necessary infrastructure like electricity and steam and effluent treatment facilities at internationally competitive prices
- Connect the chemical sites through railroads to the major ports and create Inland Container Depots to avoid transporting dangerous goods on road and to reduce logistic cost
- Set up industry specific skill development centres which address the requirements of the chemical industry for well qualified technical operators for running the chemical plants below the level of engineers
- Streamline the number of permits and clearances required to build and start up a chemical plant and develop a system of ‘single window clearance’ which has as key element the responsibility of high level bureaucrats to get projects implemented
India really needs a stronger chemical industry to fulfil the rising demand of raw materials and intermediates for the growing production of end consumer products. If the points outlined above are addressed not only will the large multinational companies invest more in India but also significant additional FDI could be attracted from the large SME sector in Europe.
Dr Joerg Strassburger is the founder & CEO of Go East Advisors - a business consulting company specialised to buildup and/or advance Indian businesses in the chemical industry and related sectors. Dr Strassburger has more than 20 years of experience in the international chemical industry. For approximately nine years, he was managing director of Lanxess India.