Bimal Goculdas 
Managing Director & Chief Executive Officer, The Dharamsi Morarji Chemical Company 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?

Bimal Goculdas (BG): There is global economic uncertainty. It is not restricted to India as a country, or any particular sector. The chemical industry provides inputs for almost all other industries. Buildings are made of cement, steel, paint, glass, ceramics etc. so when the real estate industry, for example, is in a slow down the input industries will also face the slow down. This includes the chemical and allied industries.

Our company provides intermediates for a wide range of sectors including, polymers, paints, agrochemicals, pharmaceuticals etc. In the last 2 quarters business was much slower than the previous 7 or 8 quarters. According to us, this is a result of the global perception of declining consumption, which leads to manufacturing sector becoming more conservative. Geo-political uncertainty also adds to the confusion. We believe that fundamentally, India as a country, and the chemical industries within India, will have good growth, subject to getting the right support from the government.

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?

BG: The Government of India is taking steps to identify large volume and value imported chemicals and to encourage domestic productions of the same. It is important to realize that any steps that the government takes needs to be within the ambit of the WTC as well as other trade agreements that have been signed in the past.

There are other issues as well which require long term planning and strategic thinking. These include: creation of efficient logistic infrastructure including coastal and inland water transport, creation of truly integrated chemical complexes with pipeline transport and shared infrastructure and utilities.

Also important for expansion and diversification is an environmental policy that permits compliant companies to grow and address changes in markets. It is currently taking too long to get permissions for expansion or change in product mix, by such time the market dynamics may have changed. While some flexibility has been given to certain sectors such as pharmaceuticals and dyes, a general policy decision for the entire chemical industry is needed.

CID Q3: Also our exports of chemicals have come down. What are the reasons for this? Why are we not globally competitive?

BG: Exports of chemicals have come down due to a variety of reasons. It needs to be understood whether global demand has gone down and therefore exports from India have reduced, or whether India’s share of the global market has reduced. It is also possible that since the prices of crude oil and commodities have reduced, exports may have gone down in value but not in volume. So a thorough study needs to be done to understand the correct position.

Regarding competitiveness, for large volume chemicals India will have a rough time competing because of lack of availability of feedstock, poor pipeline and transport infrastructure, high cost of utilities, and smaller scale of operations. However, in the small and medium volume chemicals particularly the specialties, pharmaceuticals, agro chemicals etc. where technology and innovation plays a big role, India is globally competitive. If some of the bottlenecks mentioned above are eliminated or reduced, growth can be exponential.

CID Q4: 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?

BG: R&D spending by companies varies widely. Most multinational companies do their research in dedicated labs, very few of which are in India. The scale of individual Indian companies compared to global peers is much smaller which again means that there are fewer resources available to invest in R&D. Even in the pharma sector, where India is a big player, no molecules have been invented in India because the cost and risk is too high for even the large Indian pharma companies. Most of the R&D work done in India is on process development and this is not always well documented for a variety of reasons, including safe guard of intellectual property.

While there are good research institutes all the over the country, the interaction with the industry needs a lot of improvement. We have great minds in India, that is evident from the kind of work Indians are doing in overseas research centres, but enough opportunities are not available to challenge and retain the brightest talent within India.

CID Q5: 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?

BG: There are several steps that need to be taken from all concerns:

1. The Government should invest heavily in all kinds of infrastructure, even though it does not seem necessary at this point in time.
2. Special focus should be given to have truly integrated chemical complexes with incentives for common utilities and common effluent treatments.
3. Students from government funded institutes, who pursue further studies or careers abroad may be made to sign a bond towards the subsidized cost of education. Also, industry should put an appropriate value for technical talent so that engineers and scientist can get their true worth. Today, India’s brain drain is benefitting the west.
4. Research institutes and universities should be upgraded with the latest laboratories and computing facilities. The Government should focus on having quality institutions rather than large quantities. If we are generating lakhs of unemployable engineers, it is of no use to the industry or the country.
5. Companies which have high environmental standards, including Responsible Care Certification should be given freedom to expand and change their product mix so long as their effluent load is not increased.
6. There should be focus on water resources, no untreated sewage should move into any river. This is responsibility of the government at local and national level. Availability of water for industry should be ensured as well as guiding farmers away from crops that require excessive water.
7. India has a very viable feedstock, it is also renewable – Ethanol from sugarcane. Burning of Ethanol by blending in fuels is a criminal waster and should be banned instead of being encouraged.
   

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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.

For more such interesting opinions and views, read Chemical Industry Digest regularly.
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To feature your company’s profile or an interview/ opinion/views of your company representative in print or online, write to us at chemindigest@gmail.com