As 2020 has dawned and heralds the beginning of a new decade, India, as well as the rest of the world, stands at the crossroads facing daunting challenges – economic, trade related and political. There seems to be a global backlash against globalisation, particularly among the developed countries leading to insularity, tradewars and higher protection of domestic markets. The portends are just unfolding. Overall GDP growth has come down and all industries have been impacted.
The growth in the Indian Indian chemical industry has slowed down; there is a famine of new projects and exports have been hit. Why is the industry shy of investing? And how is the Indian chemical industry expected to fare in 2020 and in the coming years. What could be possible solutions to the challenges the industry faces?
To understand the problems & challenges facing the industry and how individual industry is faring, Chemical Industry Digest solicited views from leading CEOs and industry captains. Watch this space for views of leading heads of Companies.
Adnan Ahmad
Vice Chairman & Managing Director, Clariant Chemicals (India) Ltd.
Chemical Industry Digest (CID) Q1: Various reports including government data show declining GDP growth. Economists are also talking of challenging times. In the light of these observations, overall how do find the chemical & allied industries, chemical plant & equipment & engineering segments faring? How is your industry in particular faring and how do you look to 2020 and the rest of the decade unfolding?
Adnan Ahmad (AA): On the basis of information in public domain, one can observe that market sentiment is weak and hence, we have not been witnessing investments for growth as compared to what we have seen in the past. As we see consumer consumption slump, we also can expect challenging times ahead for our industry. Announcements by the Finance Minister around increased government spending on infrastructure is a positive sign for the industry that will likely counter the slump in consumer spending.
Specialty chemicals by definition can enhance the characteristics of products, thus enabling our customers to offer differentiation to consumers. This is always a good value offering for customers, and should be able to find ways to weather the storm that we are in today. Clariant in India has seen its best year ever in 2019 with a focus on innovation and customer value add. We hope this trend will continue. Going forward, the Indian chemical sector is expected to double to $300 billion by 2025. However, a majority of this could come through imports unless we see more investments coming into the manufacturing sector in India. The massive potential of the sector is yet to be fully utilized. India’s per capita consumption and penetration level of chemicals is lower than the global average indicating significant headroom for growth.
CID Q2: Many chemical company spokespersons say that there is a demand recession, while at the same time there are many platform and other chemicals, APIs etc. being increasingly imported, which we can well produce here or increase existing capacities. Why are companies not investing in new projects or increasing capacities at least for those chemicals where we have good demand and are being imported?
AA: I don’t see a recession in demand, however, the rate of growth is slowing. At the same time, imports are growing, and this is evident from published market data. Local production can only grow if companies can do so profitably. This majorly depends on a number of factors including:
- Access to low cost raw materials, which in our case is also dependent on feedstock availability in India
- Infrastructure for the chemical industry has to be provided locally by the company itself, while industry parks in China or Singapore provide excellent support in the form of availability of utilities like steam & power, common effluent treatment plants, logistics and warehousing facilities, etc.
- Access to skilled labour is another important factor. While we have an abundance of really good quality manpower, most of the skilling has to be done within the industry as appropriate skills are not developed by appropriate institutes
- An obvious area to give us competitive advantage would be more efficient transportation with better road, rail and port infrastructure.
CID Q3: Also our exports of chemicals have come down. What are the reasons for this? Why are we not globally competitive?
AA: 34% of India’s export earnings comes from its chemical industry which is currently the third largest producer in Asia in major chemical categories including agrochemicals, polymers and plastics, dyes and various organic and inorganic chemicals. Exports at Clariant are at an all-time high. This can be attributed to the fact that we have the right product offering for our global customers and can remain globally competitive in product cost and quality. For the industry in general, competitiveness is dependent largely on some of the factors I mentioned earlier, such as availability of raw materials, skilled labour and infrastructure. Most importantly, exports can only grow when India can compete as a manufacturing hub for chemicals globally. We are already recognized as a leader in supplying the pharma and agricultural sector globally. Going forward, domestic demand growth coupled with opportunities in the export market should help India establish itself as a chemical manufacturing powerhouse, globally. The specialty chemicals sector is expected to see double-digit growth for multiple years on the back of an increase in per capita consumption locally, import substitution, and rising share of global exports. The introduction of the export-oriented units (EOU) scheme by the government to boost exports and increase foreign earnings may also support the sector.
CID Q4: Several challenges and obstacles are cited by industry experts that are affecting the growth and competitiveness of the chemical industry from dearth of feedstocks to technological constraints to infrastructural bottlenecks (roads, ports, railways) to environmental activism to government policies. What is your take on this?
AA: With regard to environmental activism, this is clearly being done with good intentions and a focus on future generations. There are responsible companies who are investing wisely in sustainability and I hope more brands join the wagon for a better tomorrow.
CID Q5: Despite the fact that the chemical industry is a technology intensive industry, which needs significant R&D inputs and which needs can also make our industry competitive, the industry’s spending and results on the R&D front are none too great to write about except for a few exceptions here and there. Why are chemical companies not enthusiastic on the R&D front?
AA: This is an extremely valid point but difficult to explain in the context of India. Every year we produce outstanding talent from our technical universities some of which compete with the best in the world. At Clariant, we have set up a Global Technology & Innovation Centre in Mumbai utilizing highly qualified resources available in the Indian workforce to service our customer needs all over the world. Perhaps, the industry in India at large is more focused on short and medium term returns and hence, does not see the need for committing to long term investments in R&D. While some multinationals have set up R&D centres in India, it would be encouraging to see more local companies do the same. As a nation, we are excellent in product development and adapting existing technologies for the Indian market but need to do more around innovation and fundamental research.
CID Q6: What solutions and measures can you suggest from industry side as well as on the part of the government to drive the growth of chemical & allied industries in India?
AA: The industry must ensure that it focuses on sustainable solutions in the manufacture of its products. This cannot be seen as an option. The industry must invest in delivering world class quality standards and work to conform to world class environmental norms. Collectively, we must improve the perception of the Indian chemical industry locally as well as globally. From the government’s perspective, we need a clear policy for the chemical industry in India. I am aware that this is being worked on and have seen a draft of the policy which when implemented can have a significant impact on the attractiveness of India as a manufacturing hub for chemicals. It goes without saying that as infrastructure in India improves all industries will see an uptick in investments to manufacture in what is and will be a very attractive market.
