India, an emerging hub for specialty chemicals?

According to Frost & Sullivan, the Indian chemicals industry, which earned revenues in the range of $ 155-160 billion in 2013, is likely to grow at a rate of 11-12 percent in the next two to three years. The research firm expects commodity and bulk chemicals to experience slow growth owing to reduced industrial output, while the specialty chemicals segment is expected to show considerable growth.
 
“Buoyed by key factors such as robust growth in end user segments, government’s and industry’s focus towards manufacturing, value addition and increased competiveness of Indian manufacturers in the global markets; India is likely to emerge as a major player in the global specialty chemicals domain,” opines Vishnu Sankaran, Associate Director & Head – Chemicals, Middle East, North Africa & South Asia, Frost & Sullivan.
 
According to him, the chemical industry received FDI to the tune of $ 8.8 billion during the 2000-2013 period, with over 75% of the inflows during the past three years. Major chunk of this FDI came from specialty manufacturers such as BASF, Dow Chemical Company, Bayer Group, Clariant International AG, etc.

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Nitin Nabar, Executive Director & President - Chemicals, Godrej Industries Ltd, says, “The global specialty chemical industry is projected to be $ 1 trillion by 2020 and Asia’s share (excluding Japan) is likely to be 35%. In line with this trend, specialty chemicals is gaining momentum in India and, according to a study by CII, it is expected to grow from $ 20 billion to $ 80 billion in the next decade.”
 
A large number of multinational companies are considering India as the sourcing & manufacturing hub due to its cost advantages. According to Nabar, India can emerge as a major global player subject to availability of infrastructure, key feed stocks (raw materials) and energy essential to manufacture specialty chemicals at low cost. Bottlenecks at India’s ports need to be streamlined to emerge as major exporter.
 
However, the real edge, Nabar believes, would come from product technology and innovation.
 
Gaining global prominence
India has only 3% share of the global specialty chemicals market, which was estimated to be $ 785 billion in FY12. “With current market growth rate by 2020 India will double its share in global market. This will position India as one of the key players in global specialty chemicals industry,” opines Manish Panchal, Practice Head - Chemical & Energy, Tata Strategic Management Group.
 
He believes that the growth numbers can only be achieved provided fundamental issues of feedstock availability, reliable and consistent supply of utilities, infrastructure bottlenecks and ease of doing business are addressed. Progress on these fronts over the past few years have not kept pace as required.
 
Panchal says, “The industry in India is competing with some of the most efficient production centres with global scale capacities either already installed or under development. This is the case across the value chain be it for building blocks or downstream value added products. For example, Middle East, China, South Korea and Singapore have high magnitude of installed capacities across various building blocks, intermediates and further downstream derivatives.”

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Furthermore, India has signed multiple Free Trade Agreements (FTAs) with various countries leading to either no import duty or negligible import duty on a host of chemicals. “This makes Indian industry less competitive and hence players are required to build capacities which bring in economies of scale,” points out Panchal.
 
Innovation is the key
The global specialty chemicals industry has been slated to grow at about 3.7% in the next 2 to 3 years, as per the IHS forecast for 2012-17. While the developed countries are seeing a very low growth, the emerging countries see a very high growth rate of almost 8%.
 
“This is primarily because of the increased sales in the consumer electronics and automotive segments. In the last few years, a lot of focus has been seen in the R&D sector. Several research institutes, national laboratories like NCL and private sector companies are focusing on developing specialty chemicals and polymeric additives for the automotive, textiles, packaging and other end user segments,” says Samit Jain, Director, Pluss Polymers.
 
According to Jain, spending on innovation and R&D has increased. VC firms are looking beyond the conventional domains of e-commerce, internet and service based companies to fund product developments. Perhaps this explains why Tata Capital Innovation Funds (TCIF) has funded Pluss Polymers with Rs 15 crores to develop specialty chemicals and polymeric additives.

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Moreover, the Confederation of Indian Industries (CII) and the Department of Science and Technology (DST) has started a unique scheme called Global Innovation and Technology Alliance, where industry leads the R&D unlike conventional schemes thus far where academic institutes would. This, Jain believes, will result in several innovations coming out from the industry enabling India to lead the specialty chemicals market in the years ahead.
 
Many of the global specialty chemical companies have identified India as one of the key markets for their ambitious growth plans. “We are set to establish highly advanced technologies leading to the creation of a robust system across platforms, for eg, upgraded technical service labs to modernised manufacturing practices, leading to tailor-made products & services. This will further reinforce our commitment towards the specialty chemicals business in India and bring us closer to offering innovative & customised solutions for our customers,” says Dr Deepak Parikh, Vice-Chairman & Managing Director, Clariant in India.