|
Achieving 3x growth in the
Indian chemical industry: What will it take?
|
|
The
Confederation of Indian Industry (CII) has set an aspirational target of
tripling the size of the Indian chemical industry between 2015 and 2025,
which if achieved will take the industry from $144-bn now to about $430-bn by
2025. But this ambitious target will not be achieved under a
business-as-usual scenario, and will require a coordinated blend of policy
interventions and firm level actions, including several to overcome a
challenging market scenario in much of the world. The growth rates will also
require the industry to seek much larger access to international markets than
now.
CII
has identified the chemical industry as one amongst nine “champion industries
of tomorrow” wherein India has a high probability of being amongst the
top-two in next ten years. In these nine, it has identified 26 sub-sectors
where consistent double-digit growth is feasible, leading to 100-mn jobs.
These are to be the focus of ‘Make in India 2.0’ – a renewed national effort
to ramp up manufacturing.
Why import rather than make?
That
India’s chemical industry punches below its heft are obvious to anyone
tracking it. While the industry does have an important role in the
manufacturing economy of the country and a much larger enabling one – albeit
unrecognised and uncelebrated – it has lagged other sectors in investments.
The number of projects – especially from international companies – has been
few and tended to be small to medium ticket ones. Overall, chemical
manufacturing has taken a backseat to imports and the last decade can be
described as one of market growth without much asset or job creation.
Several
reasons have been attributed to this state of affairs. Poor infrastructure –
both general and specific to the chemical industry – tops the list. This
includes well-demarcated lands for siting projects; pipelines to carry raw
materials & finished products; and power, water & waste management
facilities, to name just a few. Just as important has been lack of access to
feedstock, such as olefins. These vital molecules are mostly captively used
for a few products, to the exclusion of several other possibilities. Delays
in regulatory approvals for new projects and even expansions are a
significant deterrent, especially in the fine & speciality chemicals
business, where portfolios are typically churned to stay in tune with market
dynamics. The lack of contemporary standards in several areas, and the
absence of a comprehensive national chemical regulation to guide replacement
of products proven to be harmful to human health and/or the environment, is
also a concern. The open access to the India markets through free trade
agreements (FTAs) has also served to deter investments, and driven several
value chains to regions that enjoy access to the Indian market at
concessional or nil tariffs.
Tackling the infrastructure and feedstock challenges
Improving
infrastructure tops the list of things to do, and the prescription is well
known: clearly demarcated manufacturing zones with access to feedstock,
energy and utilities that will enable projects to get quickly off the ground.
SMEs, in particular, cannot be saddled with costs of creating infrastructure
or repeating it (as is done with captive power plants), and hope to be
competitive. The PCPIR policy that envisages creation of such zones in
several coastal states are conceptually sound, but need to be reworked
keeping the feedback received for the long delays. It will be pragmatic to
take one or at most two of these projects and get them going within the
timeframe of one year, and make these a hub around which a vibrant downstream
industry can develop.
Feedstock
supply from the anchor clients (refinery and/or cracker operators) to user
industries must be mandated on commercial terms using models that are well
established in several parts of the world. These projects must seek to fill a
large void that now exists in the industry – a range of intermediates that
are now imported in millions of tonnes. The government has given repeated
oral commitments that such feedstock allocation will be provided to third
party investors and the sooner this policy is formalised the better.
Diversifying the feedstock base
While
the chemical industry will continue to be dependent on oil and gas for the
near future, it will be prudent to look at alternative feedstock options.
Biomass and coal come to mind, and a more comprehensive and coordinated
approach needs to be taken to exploit both. Biomass utilisation for energy –
through biofuels or otherwise – needs to be objectively reviewed through a
techno-economic and sustainability prism far more closely than has been done
so far. Remember, India had a thriving alcohol-based chemicals industry that
has been decimated by diversion of ethanol as a blend into petrol. Coal is
making a comeback here for fertiliser production, but the scope of using it
for chemicals (such as methanol, olefins & derivatives) needs to be
evaluated closely in the Indian context, though it seems to have worked well
in China.
Creating a level-playing field
Resolution
of issues arising from FTAs is clearly more complex and more so for the
heterogeneous chemical industry, which has been a bargaining chip whose
interests have been traded away in the complex negotiations. For existing
ones, where possible, WTO-compatible tax subsidies could be given to create a
level-playing field to local investors as compensation for high cost
structures. The industry will need to take coherent appeals to planners in
Niti Aayog and to the Ministry of Finance and convince them of the larger
good that will emerge from such efforts – no easy task. For the FTAs in the
pipeline, industry associations need to be brought on board at an early stage
of the discussion so that interests of the industry are not unjustly
squandered.
Contemporary standards & regulations
Standards
in the industry need to reflect the science of the day and be in sync with
international ones, especially if the industry is to carve out a greater
share in global markets. The days of producing goods of one standard for
India and another for the rest of the world are over. Guidelines in respect
of fire safety, for instance, could give a leg-up to demand for several
speciality chemicals, while fuel standards for automobiles could benefit
producers of engineering plastics and fuel additives, to name just two that
immediately come to mind.
It
is not always that norms in India are always looser; norms for effluent
discharge into water bodies, for example, are irrationally more stringent
here than almost anywhere else. Such standards need to be progressive and
science-based.
The
whole aspect of chemical regulation is still ignored, despite international
commitments to put in place a framework by 2020. Unlike any other country
with a significant chemical industry, India still lacks a national inventory
that identifies chemicals in commerce and the risks & hazards they pose
in the value chains they are put to use. This should be taken up on a
priority basis with clear timelines for phase-out of harmful products, and
support for innovation that leads to safer substitutes.
Onus on industry to recognise the paradigm shifts
The
industry, on its part, will need to recognise that paradigm shifts in
technology and markets are taking place. In fine chemicals, for example, a
transition from batch to continuous processing with benefits of safety,
quality, scale and investments, is well underway, and will have consequences
for Indian companies.
The
markets for several value chains have been adversely impacted by irrational
investments, mainly in China, and selection of the right portfolio for
manufacture here will be crucial. Identifying strengths and working on
weaknesses is vital, and technology will have a big role to play. The
industry will also have to decouple its growth models of the past, and relook
the landscape of opportunities. Many leading companies are re-evaluating
their portfolios through the lens of sustainability and there are lessons for
Indian companies here as well.
Last,
but certainly not the least, skillsets will have to be made available to
serve the industry in the right numbers and in the right quality. Given the
poor image of the industry amongst the youth, this is no mean challenge.
In
summary, there is a need for empowering policies at the local, state and
central levels that address issues that lead to non-competitive costs and
encourage technology-led growth.
|
- Ravi
Raghavan
Chwkly
6dec16
No comments:
Post a Comment