| Summary:
The Indian chemical industry has innate strengths with
strong sectoral inter-linkages and one of the largest
end-consuming markets. There are also large export opportunities.
Indian chemical industry with robust innate strengths
enjoying strong sectoral inter-linkages and operating
in one of the largest end-consuming markets will remain
the chemical destination of the millennium, touching
an export target of $10 billion by 2003
India is the world’s largest supplier of castor
oil with over 90% share of the global market. So what?
.... you’ll say. Yet in the glooming overall scenario
of economic-slowdown, such a revelation is something
to cheer about.
The Indian chemical industry is keenly
awaiting outcome of the talks between India and Pakistan
for progress on the pipeline that brings Iranian gas
to boost availability of the crucial feedstock for the
manufacture of petrochemicals. Gas which is an alternative
to the feedstock, naptha whose price has escalated lately
holds key to galloping growth of the Indian petrochemical
sector besides keeping alive the hope for rolling back
of domestic LNG-cylinder prices.
Welcome to India’s multi-dimensional
chemical industry (Table 1), with an annual output of
$28 billion, yet forming an abysmal 1.5% of the global
chemical industry. The industry that contributes to
about 5.6% of India’s total exports and 7% of
the GDP (Fig. 1) recorded annual growth rate of 12.5%
of the industrial production and 16.2% of exports of
manufactured goods.
India is emerging amongst the top five players in selected
petro-chemical products like PTA, para-xylene and poly
propylene; it ranks 12th in pharmaceutical production
and is the second largest producer of pesticides after
Japan. Figure 2 depicts the sectorwise breakup of the
Indian chemical industry.
 In
fact, the chemical industry forms the backbone of the
industrial and agricultural development programme of India.
It provides the building block for several downstream
industries such as pesticides, drugs, dyestuffs, detergents
and so on. Nevertheless on a per capita basis, the consumption
of chemical products is only one-tenth of the world average!
That is a pointer to the immense growth opportunity in
the world’s largest end-consuming market of 300
million middle-class people. Comparison
with China are always interesting: China has a capacity
of more than 27 mpta of ammonia against our capacity
of 11mpta; 5mpta of ethylene capacity against our capacity
of less than 2.5 mpta. China is aggressively augmenting
its chemical and petrochemical capacities and catching
up with us in fields like pharmaceuticals and specialties
Singapore is building world-scale chemical-petrochemical
complexes. Similarly, middle-east countries are moving
beyond refining to value-added petrochemical and other
commodity chemical products taking advantage of their
low feedstock and energy costs.
All this puts immense pressure on this
industry to guard its turf. The industry is likely to
be on the high growth phase in the next few decades,
with growth rates at around 15% per annum growing at
double the Asian growth rate and five times the world
growth rates.
Chemical industry is one of the oldest
industries in India. It plays a crucial role in meeting
the daily needs of the common man and contributes significantly
towards industrial and economic growth. Late 50’s
and 60’s saw the growth of the organic chemical
industry based on ethyl alcohol. Late 60’s and
70’s saw the rise of fertiliser and petrochemical
companies and the feedstock was mainly naptha.
The Indian chemical industry is highly
fragmented with about 6,600 firms contributing to 1.5%
of the global production. This is in contrast with the
12,000 US firms that account for 24% of the global production,
and Japan where, 4,500 firms produce 16% of the global
output. Thus globally, our chemical industry is a marginal
player. In terms of size, the global chemical industry
is five times the size of the Indian economy.
Chemical industry is capital intensive
with certain minimum gestation period. Accordingly,
the government has to be proactive and also the financial
institutions should be facilitated to invest in chemical
projects.
Refineries
India’s first refinery was set up
at Digboi in Assam. The refining capacity has galloped
from 0.25 million mtpa at the time of Independence to
113 million mtpa in 1999-2000 from 17 refineries. Of
the 17 refineries, as many as 15 are in the public sector.
Indian Oil has 7 refineries, Hindustan
Petroleum 2, Chennai Petroleum 2, and one each by Bharat
Petroleum, Kochi Refineries, Bongaigaon Refinery and
Numaligarh Refinery. The private sector refinery Reliance
Petroleum Project at Jamnagar has the largest capacity
of 27 million mtpa with expansion plans of 13.5 mmtpa.
The other private sector refinery, namely Mangalore
Refinery is of 9 mmtpa capacity.
With ambitious investment plans envisaged
in the public and private sectors, the refinery capacity
is expected to reach 129 million tons by March 2002,
while the consumption is estimated around 110 million
tons. Also, if PSUs pursue their current project plans,
the installed capacity will touch 147 million tons by
March 2003 and 165 million tons by March 2004.
In this scenario of excess capacity, the
refineries have to look out for new markets. With margins
under pressure, the refineries will go for integration
with basic chemicals like benzene, toluene, xylene,
cumene, olefins, cyclohexane etc. Also, the refineries
need not sell residual power to others to produce power:
instead they themselves can do so and aim to become
energy companies.
PESTICIDE INDUSTRY: Going great
guns
INDIA is one of the most dynamic generic
pesticide industries with total installed capacity of
technical grade pesticides of 1,25,000 MT with 65 basic
producers comprising medium and large scale units (including
10 MNCs) and 400 pesticide formulators with a market
size of $760 million (1998-99) for use in agriculture,
public health, household and plant protection.
Indian companies are very strong in generic
pesticides and are totally self-reliant for raw materials
due to high backward integration with good R&D facilities.
The current global market of $18 billion
for generic pesticides is poised to reach $27 billion
by the year 2005. This is a healthy growth of 54% in
value, indicating a bright future for Indian pesticide
industries.
Exports of pesticides experienced growth
of 10 to 15% in the last 3 years . Interestingly, many
Indian companies have opened their offices and stock
depots in Australia and Europe to ensure quick delivery.
Many of them have obtained US & EU registrations
and started exporting.
Sources in this industry point out that
registration procedures and formalities for export registration
of insecticides and pesticides are lengthy and cumbersome.
Sometimes this leads to loss of orders. In spite of
many representations from associations, the dilatory
system continues and forms a major constraint for the
pesticide industry’s growth.
India is a WTO member and also a party
to the Paris Convention for international patents. Our
Patent Act is under amendment which will facilitate
international patents to be enforced in India.
Indian pesticide industry due to strong
fundamentals like cheap availability of raw materials,
intermediates, process expertise, low overheads, low
operating costs and R&D strengths will attract many
foreign companies and foreign direct investment.
Petrochemiocals
 Indian
petrochemical industry with a market size of Rs. 1200
crores in 1998-99, and growing @ 15-18% is one of the
largest industrial segments of corporate India.
Historically, it made a late start in India with Union
Carbide setting up 20,000 tpa naptha cracker plant in
Mumbai in the late 60s, followed by 60,000 tpa plant by
Nocil. IPCL’s commissioning of the 130,000 tpa ethylene
plant in 1978 at Vadodara was a prelude to the bright
future when offshore oilfields were discovered in the
Mumbai region.
Petrochemicals are manufactured from petroleum
feedstocks like naptha and gas. Natural gas an attractive
technical option for feedstock was not viable earlier
due to its pricing and inadequate availability. But
a spate of LNG projects coming up in Gujarat could alter
the scenario drastically, making India competitive enough
to capture part of the global market.
Petrochemicals are converted into plastics,
synthetic fibres, detergent intermediates and chemicals.
Figure 3 depicts the production of major petrochemicals.
Today, Reliance Industries dominates the
Indian petrochemical industry, deriving 45% of its turnover
from the manufacture of synthetic fibres and intermediates.
The other players, namely IPCL, Nocil, GAIL and Haldia
Petrochemicals concentrate on polymers and chemicals.
IPCLhas three ethylene cracker complexes at Vadodara
(180 Ktpa), Nagothane (400 Ktpa) and Gandhar (300 Ktpa).
Three major aromatic complexes that use naptha as feed
are by JK Aromatics at Bharuch (200 Ktpa), Napco at
Manali ( 474 Ktpa) and Grasim at Mangalore (455 Ktpa)
produce p-xylene, o-xylene, benzene and other end-products.
Table 2 lists the proposed cracker complexes in the
near future.
With proposed scaling down of tariff barriers,
and oversupply situation in Asia, cheap imports could
flood the Indian market, forcing domestic companies
to compete with MNCs with technology and capacity advantages.
To remain competitive, Indian petrochemical industry
would have to carve out a niche in the export market
while reducing its dependence on domestic users.
Speciality Chemical industry:
a snapshot
THE Indian speciality chemicals sector
has around 2,000 companies with a turnover of Rs. 12,000
crores.
50 companies in the organised sector account
for a trade volume of Rs. 2,500 crores.
Exports account for a significant portion
of the total turnover. Raw material costs account for
50-55% of the total cost of production.
While Indian companies concentrate on
formulated products, the industry is dominated by MNCs
who concentrate on technical specialities. The profitability
of Indian companies is lower than MNCs because of reduced
opportunity for leverage of products, technologies and
capabilities.
Research shows that out of the total sales
value for industrial chemicals and chemicals-based consumer
products (which together account for the entire chemicals
industry), specialties account for around 21%. Fine
chemicals and differentiated commodities , which are
partly specialities, for another 6 % and 14% respectively.
There is thus greater value in specialties
than in commodity chemicals. The market attaches greater
value to the specialty chemical companies mainly for
their potential to generate higher revenues and margins
compared to the commodity chemical producers.
In a knowledge economy, technology- and
customer-oriented approach is the key to success.
The specialty chemical companies bank
on these approaches to offer solutions and specific
services to customers. This helps the specialty companies
to charge far more for their offerings than what a commodity
chemical manufacturer can for its products.
The improvement in margins through
top-line growth is far higher than what a commodity
chemicals manufacturer can achieve via economies of
scale. Margins can be better improved through value-addition
than by a cost rationalisation. Accordingly, specialty
chemical firms are able to generate more stable streams
of revenues and profits.
Fertilisers
Fertlisers that played a crucial role
in sustaining India’s green revolution, are basiclly
of three types, namely urea, phosphatic and potassic
(Fig. 4). 64 plants produce 11 million tpa of urea and
95 plants yield 3.4 Mtpa of phosphatic type, with the
entire demand for potassic fertilizers being met through
imports.
Urea and DAP (diammonium phosphate) are
the most popular fertilizers. The consumption of fertilizers
is less than 100 kg/hectare in India as compared to
Bangladesh(108 kg/h) and Pakistan (102 kg/h). Even within
the country, while Pondicherry uses 467 kg/h the north
eastern region uses only 10 kg/h.
Major public sector companies are: Fertliser
Corp. of India, RCF, Hindustan Fetiliesr Corp., IFFCO,
Kribhco, National Fertilisers Ltd, Pradeep Phosphates
Ltd and Madras Fertilisers Ltd. Private sector players
include: Coromandel Fertilisers, Shriram Fertlisers,
Duncan Industries, SPIC, Zuari, MCF, EID Parry, Deepak
Fertilisers, Hind Lever Chemicals, Tata Chemicals, Oswal
Chemicals & Fertlisers and so on.
During 1999-00, an investment of
Rs. 13,000 crores was made by two companies, namely
HC Hydrocarbons of Andhra Pradesh and Vavasi Oil &
Gas of Orissa to se up mega fertilizer plants. Currently,
there are 25 ongoing fertiliser projects (20 in the
private sector) involving investment of Rs. 31,950 crores.
Chemexcil
The global pharmaceutical
industry of over $ 300 billion offers tremendous opportunity
for Indian industry. The CHEMEXCIL segment consisting
of five sub-sectors (Fig. 5) that achieved exports of
Rs. 13,826 crores in 1999-00 is poised to reach a figure
of Rs. 36,000 crores in 2004-05. Drugs and Pharma, the
largest sector in this comprises of 300 bulk drugs and
20,000 formulations, making India among the top 5 bulk
drug manufacturers. Here, USA, Russia and Germany are
prime destination.
"Specific guidelines should be framed
for export production or marketing of new drug molecules
in the post-EMR (exclusive marketing regime) to avoid
hold-up in future" says D.S Brar, chairman CII’s
national committee on drugs and pharmaceuticals. To
encourage R&D, products of patented original research
in India should be exempted from central and local taxes
and duties, he feels.
In view of the presence of over 20,000
small and medium size drug manufacturing companies,
there is tremendous potential for contract manufacturing.
They face price competition from China on account of
Chinese subsidies for exports and their lower cost of
production. High cost of finance, raw materials &
power, inadequate infrastructure coupled with some obsolete
laws make Indian products more expensive than the Chinese
counterparts. There is also lack of awareness among
small-scale entrepreneurs about implications of WTO
provisions.
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