Page 129 - CW E-Magazine (16-1-2024)

Point of View

Look beyond Gujarat for new projects

Investment summits in Gujarat and Tamil Nadu (TN) held recently have seen the announcement of a slew of projects from incumbent
companies in the respective regions. The quantum of investment varies from company to company, but are welcome even if the details are
hazy, and few, if any, timelines for execution have been indicated. Not all projects will go through to completion, but that has historically
been the case when it comes to investor summits. Some are rehash of earlier announcements, but get added to the tally so State
Governments can tom-tom the success of such events.

This column has often lamented the fact that the chemical industry in India has been unable to find new epicentres to take it to the next
stage of growth. Instead, investments are flowing into traditional homes, in particular Gujarat. While this is understandable, given the long
history of development of the industry there, and the willingness and friendliness of the State bureaucracy to the chemical industry, it is
now reaching a stage where further growth at existing industrial clusters is neither feasible, desirable, or sustainable in the long term. In
short, it is vital that new manufacturing hubs emerge, and several options exist, particularly in the coastal States on both the east and west.
Where should the industry go to invest?
The chemical industry across the globe prefers to invest in clusters, and regulators increasingly wish the same. These are planned
pockets geared to industrial activity and to the special needs of the chemical industry, and afford efficiencies and, just as importantly,
improved safety. Clustering affords several opportunities to cut costs – by sharing infrastructure (think waste treatment and power
plants), and accessing feedstock across-the-fence (think olefins and aromatics) and tap into markets (which could be a producer in the
neighbourhood). The efficiencies and the commercial benefits that stem from the sharing of resources and infrastructure can make up for
at least some of the deficiencies that comes with manufacturing in India (e.g., high financial costs, high energy prices, etc.).

Clusters also serve as magnets for talent, and benefit both employees and employers by offering choices when it comes to hiring.
Most are designed to be a safe distance from population clusters and this is very important. Notwithstanding the many risk mitigation
measures companies take, chemical manufacturing does have hazards and one way to mitigate risk is through clear zoning that keeps a
healthy distance between plants and populations.

The chemical industry also prefers being near water bodies – a coastline or a riverfront. In Western Europe much of the development
of the industry first took place along the Rhine, for instance. Many of the iconic companies of the past (some of which no longer exist)
were located along this river, benefitting from efficient logistics, access to fresh water (for process and cooling needs), and serving as
a receptacle for treated wastewater. This preference is seen almost everywhere else, and landlocked locations are typically avoided
unless the manufacturing processes are very rudimentary (think formulation activity like manufacture of paints, personal care products,
or pharma formulations).

Access to feedstock – aromatics, olefins, basic inorganic chemicals – is high priority when it comes to location preference, and many
of these come from refinery/petrochemical operations. The business case for refiners in India to diversify from fuels to petrochemicals is
very strong now, and at most, though not all, refinery locations there are opportunities to go downstream. As a result, India is now seeing
both expansion of refining capacity to better leverage economies of scale, and to downstream diversification into petrochemicals, and
this bodes well for the availability of feedstock that the chemical industry craves for.
The ideal cluster that should emerge in one or more coastal States of India must be structured something like this: an anchor investor
who is a refiner; diversifying into petrochemicals; converting some of the basic molecules produced (olefins & aromatics) captively to first
generation petrochemicals; also making available some of the basic molecules to other investors for downstream value-chain building;
in turn, spawning further investments in myriad fine and speciality chemicals. These units would be located in close proximity, with all
the advantages outlined earlier.

Here are three States where these pockets can come up.

Maharashtra
Like Gujarat, Maharashtra has a long history of the chemical industry, and even today accounts for a sizeable share of manufacturing.
But for anyone tracking the industry – specifically, new projects – it is apparent it is no longer first or even second choice. In fact, there
has been a hollowing out of the chemical industry in several pockets of the State, notably the industrial estates around Mumbai. This

Chemical Weekly January 16, 2024 129

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