What really ails the Indian chemical industry?

The Government of India aims to achieve Viksit Bharat by 2047, but the target seems difficult, given that there is no indication that the required massive increase in manufacturing capacities for chemicals and allied products to promote self-sufficiency and avoid import dependence is happening, says N.S.Venkataraman. Here, he breaks down what he considers the hurdles to progress in this crucial sector of the economy

The Government of India aims to achieve Viksit Bharat by 2047, but the target seems difficult to achieve. In spite of several proactive government measures, massive spending for infrastructure projects and rising demand for chemicals in growth-oriented sectors, it appears that most corporates in India are holding back on investment, even though several companies in the chemical and allied sectors have turned out good performances in recent years and have investable surpluses.

Global chemical industry size and India’s market share

The Indian chemical industry’s share in the global chemical market is a dismal 1.98 per cent.  It is nowhere near that of China or that country’s place in the global scenario. (In 1995, China’s share in the global market was only 3 per cent.) Obviously, Indian chemical units have a lot to learn from their counterparts in China. Here are some reasons for the spectacular growth of Chinese chemical industry:

• Large domestic demand potential due to size and population
• Proactive industrial policies of the Government of China
• Government encouragement of multinational companies to invest in China, ensuring appropriate investment climate
• Facilitating healthy competition between domestic and multi-national companies
• Additional focus on appropriate investment areas based on China’s advantages, such as coal-based chemical projects
• Strong R&D initiative by domestic companies and China gaining in technology standards due to the entry of multinational companies with updated technologies
• Entrepreneur initiatives in the private sector
• Aggressive global marketing efforts

Issues facing Indian chemical industry:

• Steady growth in demand for chemicals and allied products at an impressive rate, while the domestic capacity is not built to cater to this growth
• High level of import dependence, particularly from China   
• Technical know-how constraints due to inadequate domestic R&D efforts and R&D spending by private and government bodies
• Chemical units in private and public sectors not investing adequately in R&D projects, apparently reconciled to buying technology from abroad
• Excessive dependence on domestic market, preventing large-scale capacity build-up
• Inability to penetrate export market due to lack of large capacity build-up and adequate number of globally operating trading houses in India
• Despite healthy balance sheets, corporates seem to be holding back on capex, either due to lack of confidence to operate in the global market / domestic R&D and technology, or a preference to invest in other spheres      

India is now emerging as one of the major importers of chemicals and allied products in the world with import levels increasing at alarming levels year after year.  While there are certain limitations in the government’s ability to support the chemical industry to the extent required, it is taking proactive steps to ensure the growth of the sector. Project promoters have to recognise that they too have to take several measures in improve the performance of the chemical industry. While there are several irritants confronting chemical industries, one of the biggest stumbling blocks is technology.

R&D activity in India is largely carried out by CSIR (Council of Scientific & Industrial Research) labs, universities and a few large corporate bodies. Not all companies are developing basic technologies but focus mostly on application development efforts and in quality / specification optimisation. Research activities can be bettered with greater cooperation between corporates and CSIR labs. Perhaps, the feasibility of privatising the CSIR labs to some extent can also be considered to provide greater thrust and motivation for research.

R&D efforts lose their relevance if timelines are not met. Several research projects in India are now inordinately delayed. There has to be an increased acceptance for risk and failure in R&D. It causes concern that Indian chemical industries are seeking process technology for products from abroad, which have been produced in India for several years. Further, there appears to be no nation-wide coordinated strategies to frame R&D priorities in tune with the country’s needs and strength. In such a situation, much of the R&D efforts result only in filing patents and publishing papers in journals. The Government of India should set up a task force to identify priority areas for research in consultation with industries and R&D bodies and fix timelines and decide funding for such pursuits.

Success in the R&D front is possible only if the scientists and all stakeholders function with a sense of national pride. There are certainly enough avenues awaiting exploitation in India. If there is adequate dynamism in innovative R&D, there is no doubt that the present technology crisis can be overcome and the Indian chemical industry will forge ahead in both the national and global contexts.

(The writer is trustee, Nandini Voice for the Deprived, Chennai. He is a chemical engineer.)