 "PVC pipes image via Shutterstock.")
Unchecked imports is affecting domestic manufacturers of polyvinyl chloride (PVC), a key plastic product that is extensively used in agriculture and infrastructure sectors, and hampering the investment prospects in this industry, according to a white paper, ‘Enhancing competitiveness of Indian PVC & caustic soda industries’, prepared by FICCI and Tata Strategic Management Group (TSMG).
Despite the established importance and the rapid growth of polyvinyl chloride industry for national economy, there has been no investment in new plant for the last decade. The last greenfield investment for a PVC plant in India was conceived in 2002-03, when duty differential was a little over 15 percent. However, while demand has grown by almost 1.6 million tonnes no new capacity addition has even been envisaged.
Indian import duties on PVC are lower than those in the developed world and in the ASEAN region. Imports of PVC, which were less than 5 percent of the country's demand ten years ago, are now at almost 50 percent and growing rapidly every year and are expected to reach to $ 3 billion in few years.
The polyvinyl chloride industry also has a linkage to the caustic soda industry. Majority of chlorine produced goes into PVC manufacture, and if there is no PVC capacity addition, there can be no caustic soda capacity addition. As a result imports are increasing. That is not a healthy sign and has long term implications for national economy, added the report.
The PVC industry in India is valued at over Rs 20,000 crores with five major producers and over 6,000 processors, employing tens of thousands of people, making consumer and industrial products. In spite of strong economic growth, India still has a long way to go to realise its infrastructural needs - nearly $ 650 billion will be required for urban infrastructure in the next twenty years. Also, the construction sector contributes to 10 percent of the GDP. This provides great opportunity for investment and, hence, for PVC products that are used in these sectors.
The forecasts for the polyvinyl chloride industry are bright. The global market, currently at $ 56 billion, is expected to reach revenue of $ 65 billion in 2019, with average annual demand expected to increase at 3.9 percent. The global consumption of PVC in 2014 was estimated at 40 million tonnes.
The polyvinyl chloride industry in India has historically been driven by agriculture till 2000. Thereafter, the main driver for PVC consumption has been infrastructure, for instance, pipes & fittings, that has grown to over 70 percent from 14 percent in 1975. Globally, pipes & fittings account for only 43 percent of the PVC consumption, showing that PVC applications in India other than pipes & fittings are primed for growth.
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“Indian PVC demand in the future will mainly be driven by the agriculture, infrastructure, housing and other sectors like FMCG, pharmaceutical and retail segments. The estimated annual growth for PVC will be at least 13 percent in the next five years, with demand expected to cross 5 million tonnes in 2020,” said the FICCI-TSMG report.
By 2020, India is expected to need approximately 3,700 kilo tonne (kt) of imports, ie, an additional 2,300 kt (or 2.3 million tonne) from the present level to meet its polyvinyl chloride demand. Such high levels of imports will also have a deleterious effect and the resultant net outflow of foreign exchange could be of the order of $ 5 billion.
“Today, close to 50 percent of the demand for PVC in the country is met by imports. When the country's goal today is to 'Make in India', increased imports and lower manufacturing levels contribute to loss of potential employment and widening the current account deficit. All these measures can result in a potential investment of over Rs 20,000 crores over the next 5-7 years,” added the report.
FICCI-TSMG study suggest following measures to revitalise Indian PVC industry:
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