The Indian petrochemicals industry started in a small way when the first integrated petrochemicals complex was commissioned near Mumbai in the mid-sixties. However, the initial pace of development in this industry accelerated only in the late eighties -- spurred by rapid socio-economic changes, a new emerging cultural ethos and consequently growing consumer demand and preference for newer materials with superior techno-economic benefits.
The dependence of a developing economy on petrochemicals and the important contribution it makes in meeting socio-economic obligations cannot be overemphasised. Today, the petrochemicals industry in India can be considered to be one of the pillars of the Indian economy with the potential to reach commanding heights in the coming decade. During the last plan, it registered a growth rate of 15 per cent, which is twice the growth rate of the industrial sector per se. The industry is a significant contributor to gross industrial production and revenue generation.
With a rising population, higher disposable incomes and higher aspirations, the petrochemicals industry offers tremendous growth opportunities.
In 1996-97, the total Indian consumption of major petrochemicals,including polymers, elastomers, synthetic fibres and surfactants, was around 3.5 million metric tonne (MT). The coming years will prove to be exciting and encouraging for the industry. By 2001-02, the overall demand for petrochemicals is expected to be around seven million MT, indicating an impressive compounded annual growth rate of 15 per cent.
The capacity of basic building blocks like ethylene, which currently stands at 1.2 million MT, is likely to see a phenomenal increase to 4.4 million MT by 2001-02 as several planned petrochemical complexes are to come on stream.
Worldwide, the growth of the petrochemicals industry is reflected in the demand for polymers. This holds even more so for developing nations like India.
The demand for polymers, thermosets, alloys, blends and composites is poised to increase to five million MT by 2001-02. The tremendous growth in consumption of poly-mers is fuelled by a rising demand in some key sectors of the economy. The bulk of the commodity plastics will be consumed in sectors like building and construction, plasticulture, packaging, teletronics and transportation.
The high demand growth in these sectors will also call for greater investments and bring about majors structural changes in the plastic processing industry. The perspective will shift from the current quantity-driven outlook to a technology and quality-driven one.
The current per capita consumption of polymers in India is about two kg, which is one of the lowest in the world, even lower than some of the least developed countries in Africa. At the same time, India has a very large population, approaching one billion by 2000, with an increasing standard of living and purchasing power. The staggering impact of this is that a potential increase in per capita consumption of polymers by a mere one kg will yield an additional annualised polymer demand of one million tonne.
Synthetic fibres -- polyester, nylon and acrylic -- have come to play an important role in meeting the clothing needs of the emerging populace. While the production of synthetic fibres started in India in the sixties, their consumption has shown a significant increase only in the last decade. The growth has been very high in the case of polyester filament yarn (PFY) followed by polyester staple fibre (PSF) and acrylic fibre.
India is among the few countries which produce both natural rubber and synthetic rubber. The commonly used synthetic elastomers are PBR, SBP and butyl rubber. Fifty-five per cent of the total rubber consumption is in the non-tyre segment. The synthetic rubber-natural rubber ratio in India is 20:80 against a world average of 62:38. The growing demand would require synthetic rubber to play an increasingly important role. The demand for synthetic rubber is expected to reach a level of 445 KT by 2001-02.
Growth is expected in other petrochemicals as well. Caprolactum, linear alkyl benzene (LAB) and phenol constitute nearly 80 per cent of benzene consumption in India. The consumption of benzene has grown at a compounded annual rate of around 10 per cent during the period 1980-1994. Demand in the year 1996-97 was estimated at approximately 580 KT. Demand for the year 2001-02 is expected to increase to 1,050 KT.
LAB is a major surfactant raw material and draws its importance, particularly in the Indian context, from the fact that the current per capita consumption of synthetic detergents at around 1.2 kg a year is much lower than in some of the other developing countries. It is a third of that in Brazil, only half as much as in Nigeria and far less than the world average of nine kg a year. LAB consumption is expected to increase from the current level of 210 KT to nearly 275 KT in 2001-02.
Ortho-xylene is the major raw material for phthalic anhydride as it accounts for nearly 65 per cent of the ortho-xylene used. The balance is used in paints, varnishes, thinners and the like. The demand for ortho-xylene is expected to grow from around 90 KT currently to 145 KT by 2001-02.
The varied and increasing needs of the materialistic civilisation of this century have outstripped the supply of natural materials like timber, minerals, metals. There is a historical necessity to create and invent appropriate new materials. So far only synthetic materials from the petrochemicals school have emerged to fulfill the demand with acceptable quality at affordable prices. The invention of another cheaper and versatile material is not on the horizon. Therefore, petrochemicals have their own place in the further development of our civilisation.
The post-liberalisation period has witnessed sweeping changes in the industrial sector. There are few industries that have been left untouched by these changes. The petrochemicals industry is no exception. It has seen the removal of licensing, the lowering of import tariffs, decanalisation of imported feedstocks, and last, but not the least, reforms in the financial sector, which have widened the avenues of funding both in terms of structure and quantum.
The transition from a regulated to a liberalised business environment has exposed the industry to both internal competitive threats as well as opportunities to explore overseas markets. The current tariff rates are higher than other Asian countries and are likely to go down with the passage of time. In order to remain competitive in the long run, the industry would have to focus on comparative advantages.
Domestic demand is growing at a fast pace. It is frequently mentioned that one or two petrochemicals complexes need to be set up year after year to meet the growing demand. I would like to suggest that strategies for future expansion or investments should be evolved keeping in view the law of comparative advantages. Instead of making all the products domestically, it would be beneficial to make and export those petrochemical products in which the country enjoys comparative advantages. Wherever we do not have comparative advantages, the demand should be met by imports. This would ensure not only the long-term competitive position but also optimal utilisation of resources resulting in higher growth. As the competition is sure to intensify in future, it would be prudent for domestic companies to take into account their core competencies and commit investments accordingly.
The petrochemicals industry, like other industries in the country, faces certain inherent disadvantages like high interest rates, a high cost of power, infrastru-ctural bottlenecks and the like. Interest rates in the country are deregulated and the prevailing rates are determined
by the forces of demand and supply. Due to scarcity of capital vis-a-vis demand, capital will naturally flow into sectors which have a high marginal productivity.
Some of the Indian petroche-mical companies have raised money in the international markets at very attractive terms to circumvent high domestic borrowings cost and remain cost competitive. Although there are clear signs of reduction in the interest rates in the country, domestic companies should keep the option of tapping international markets open to optimise their costs.
Frequent references are also made about high feedstock costs. It is well known that prices of petro products are influenced by the administered price mechanism in the country. It is not always that the price of domestic naptha is higher than the international price. There are occasions when international prices are much higher than domestic prices. It is conceded that regulated prices are anachronistic in a free market economy. Deregulation of the oil and gas sector has been accepted as a desirable goal by policy makers but it cannot be done overnight.
The country as such ha scertain strengths and weaknesses. Although attempts shall be made to minimise the impact of weaknesses, the petrochemicals industry should take the rough with the smooth and make the best use of available opportunities.
To stay competitive, the industry needs to acquire state-of-the art technologies. I would like to mention that one-time investment is not a panacea for maintaining a long-term competitive edge. Constant upgradation of product quality, intensive focus on research and development, developing new applications are other requirements for success. To supplement the smooth growth, a large pool of technical and skilled workforce is required. The industry and educational institutions should interact so that the curriculum is made to suit requirements of the industry.
The country has a distinct advantage in terms of availability of skilled manpower at moderate rates. The advantage of low cost labour should be leveraged to increase our competitiveness, which would help to attain higher exports. Although there are many sectors where we have the potential to increase our exports, I would like to single out the plastic processing industry which has tremendous export potential.
The export of articles of plastics registered a growth of 42 per cent increasing from $74 million in 1991 to $300 million in 1994-95. However, this does not reflect its true potential. The plastic processing industry, which is relatively less capital intensive, coupled with availability of cheap labour force provides synergy to compete in international markets. There is a need to adopt suitable strategies so that India becomes a major player in the export of plastic goods.
There is increasing concern for preserving our environment and ecology, and unfortunately, petrochemicals, especially polymers, have received undeserved flak.
Such misplaced apprehensions need to fended and awareness needs to be spread especially in the Indian context where consumption is low and there is a high degree of recycling.
The petrochemicals industry has a great future in India. By identifying product categories and segments where we can compete internationally, and with the right type of enterprise and direction, the challenges can be overcome and significant development and growth can be attained.
Excerpted from the Secretary, department of chemicals and petrochemicals, N R Banerji's keynote address at the FICCI seminar on Growth Potentials in the Indian Petrochemical Industry.
