Mudit Jain
Managing Director, DCW 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?
Ans Q1: There is a very slack demand from user industries. Many user industries have closed down or reduced their production. This is affecting our caustic soda and soda ash industries both in terms of pricing as well as reduced production. 2020, also appears to be very challenging including rest of the decade upto 2030.
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 atleast for those chemicals where we have good demand and are being imported?
Ans Q2: Companies are not investing in new projects or increasing their capacities despite there being a good demand because of high costs of production in India. These input costs like, furnace oil, power, interest rates and infrastructure costs like transportation are higher in India than those prevailing overseas. For example, the Calcium Carbide industry closed down in early 2000 due to imports from China. Hence, it is cheaper to import than produce in India. In addition, the input costs supplied by government companies are higher and so also taxes are also very high as many inputs do not get GST set-off like, cement, steel and diesel which is outside the ambit of GST. Therefore, costs in India are much higher as input cost supplied by government companies are higher.
CID Q3: Also our exports of chemicals have come down. What are the reasons for this? Why are we not globally competitive?
Ans Q3: We are not competitive because of high costs of inputs supplied by government companies. The reasons are given as above.
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?
Ans Q4: There is no availability of ethylene which is the basic building block of chemicals and petrochemicals. Moreover, transportation costs in India are much higher making imports cheaper. For example, the freight costs from China to South India is Rs.4000/- per ton whereas, from South India to Delhi it is Rs.6,500/- per ton. Imported material do not suffer any tax on the freight costs compared to very high taxation on petroleum products in India.
CID Q5: Despite the fact that the chemical industry is a technology intensive industry, which needs significant R&D inputs and which 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?
Ans Q5: When manufacturing is uncompetitive where is the question to focus on R&D? However, Indian companies manufacturing Caustic Soda have converted to membrane technology from mercury cell technology in the mid 2000 on a voluntary basis even though, many countries in Europe continued with mercury technology until 2017.
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?
Ans Q6: Costs of inputs supplied by government companies should be at international rates, excessive taxation should be removed or all inputs which are taxed should come under the ambit of GST so that there is no tax element in cost of production.
These problems have intensified since 1990, when the costs of inputs supplied by government companies in India increased sharply and imports of chemicals started increasing dramatically. As a result, Indian industry was caught between high costs and cheaper imports. This has resulted in many industries closing down and shifting their operations overseas. There is a trade deficit of nearly $200 billion which remains static as exports of Indian products of not only chemicals are uncompetitive due to government policies. That is why it is imperative that a body like MITI in Japan is formed immediately to address these structural issues.
