The chemistry of growth: Vipul Shah, Dow India

The global demand for chemicals from the late 1980s has been driven predominantly by Asia, replacing demand in the developed countries. Asia’s share in world chemical sales grew from 31% in 1999 to 45% in 2009 and then slumped to just under 44% in 2010 before jumping to 52% in 2012.
 
Though India is Asia’s second-largest chemicals manufacturer, its share in this global pie has remained almost steady at a little over three per cent. A Frost & Sullivan study released earlier this year (in March 2014) put the value of India’s chemical industry at $ 136 billion, with a compounded annual growth rate (CAGR) of 10-12% in the next five years.
 
The Planning Commission estimated in 2012 that the chemical industry contributes about five per cent of the country’s gross domestic product (GDP), revising this upward to seven per cent by March-end 2014. Its contribution to the economy, however, would be shown to be considerably more substantial if its crucial role in other manufacturing were taken into account. The chemicals industry is key to the textiles industry (which contributes four per cent to India’s GDP), to engineering and machinery manufacture (which contributes eight per cent to India’s GDP), the transportation industry (8.5 per cent), the information technology (IT) industry (nine per cent), construction (13.5 per cent) and agriculture (15.7 per cent). 
 
It is in this economic context that the Planning Commission expects that it could grow exponentially by the end of the current Twelfth Five-Year Plan (2012-17), in a range that lies between 11% per annum in a ‘base case scenario’ and 15%.
 
This could double the size of the industry and double India’s contribution to the global chemical sector. Currently accounting for 11% of India’s manufacturing output, realising this targeted potential would make the industry even more crucial for the economic development (or GDP growth) of the country.
 
All it requires, as the Planning Commission says, is for India’s chemical industry to effectively leverage its strengths and manage challenges - the opportunities arising from fast-growing end-use industries, product innovation and cost competitiveness balancing the challenges of weak regulation and standardisation, especially in ensuring implementation of clean and green technologies, and in redefining the product profile to focus on high-end specialty chemicals.

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The country has high per capita demand for chemicals - among others, primarily from the agrochemicals, biopharmaceutical, polymers, electronics, automotive and construction industries. There’s high export potential, especially for specialty chemicals such as those required for fuel cells (batteries) and emerging areas in nanotechnology and bio-technology.
 
Globally, there’s a shift in the chemical industry. Even as demand grows, the product profile is changing with demand from the electronics, construction and other engineering sectors overtaking demand from traditional consumers such as dye manufacturers. The world over, the chemicals industry is strengthening capacities in base chemicals and focusing on new growth segments - fuel cells, nanotechnology and so on.
 
India’s specialty chemicals manufacturing has already picked up momentum and from a CAGR of 10% between 2000 and 2005, its growth rate jumped to 13% CAGR between 2005 and 2010. Some companies have achieved growth of as much 25% CAGR within this period.
 
The industry enjoys the strength in being highly diversified - with more than 80,000 chemicals. This has served well as the foundation for introducing specialty chemicals and modernizing to meet current and future market demands. While demand from the traditional consumers will undoubtedly continue and grow substantially, given India’s development trends and targets, if it is to become a major exporter, India’s chemical industry must evolve its product profile and institute measures to meet the changing demand patterns.
 
Manufacturers of home and personal care products, electronics manufacturers, construction companies, packaging materials manufacturers and such others are key among the fast-growing industries that are end-users for the chemicals manufacturers. Alongside, even as demand from the traditional consumers grows substantially, in the light of global developments in the sector, India has the potential to become a major exporter.
 
The Planning Commission envisages the need for investment in the range of $110 billion to $150 billion to realise the growth envisaged above and effectively leverage opportunities through “capacity creation, technology development, access to feedstock and a larger pool of skilled human resources”. There have been long-standing proposals to improve infrastructure (including the Petroleum, Chemicals and Petrochemicals Investment Regions or PCPIRs), improve feedstock availability and provide support for new technologies (including support for research and development and establishing a chemical innovation and a technology up-gradation fund). Alongside, there are plans for fiscal incentives and for revamping education institutions to create the required talent pool. With government taking policy initiative, industry must follow with action on the ground, taking lessons from best practices around the world. Indian companies that have achieved 25% CAGR are cases in point.

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The European Union has a Vision 2030 document for the chemical industry that focuses on ‘future growth platforms’ such as nutrition sources, intelligent materials, improved energy storage and alternative energy sources. China, today the world’s leading chemicals manufacturer, is increasingly looking to consolidate its specialty chemicals segment. India too would do well to encourage targeted growth in these areas.
 
If it is to allow its chemical industry to realise its potential for contributing more to the economy, it has to act now to set timelines for action on all fronts - from setting up a fund for technology upgrade to preparing a chemical inventory, building and ensuring necessary infrastructure and supply chain facilities to facilitating the inflow of investments and regular supply of raw materials / feedstock.
 
For government and industry alike, both Europe and China offer lessons - prime among these is the will to act that will decide future growth and how much India’s chemicals industry will contribute to the economy, to the country’s GDP.
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The author is the President, CEO & Chairman of Dow Chemical International Pvt Ltd and
APAC Regional Director, Functional Materials