Page 131 - CW E-Magazine (11-3-2025)

Point of View

Raising competitiveness and building resilience

in India’s chemical industry

The focus of this year’s annual business outlook conference of the Indian Chemical Council (ICC), the premier industry association representing
the domestic industry’s interests, was on building resilience. This is timely, as the industry – like its counterparts elsewhere in the world – continues
to be battered by headwinds, some of which are well beyond its control. The conference (a detailed report of which will follow in a forthcoming
issue) offered little by way of answers but laid out factors behind the state of affairs.

Demand growth is a given
That India’s demand for chemicals will continue to grow is a given. One can quibble about growth rates, whether the past is any indicator of
the future, or whether India will follow the growth pattern of other countries in a similar stage of development, but there is unanimity amongst
industry watchers (including this columnist) that demand will continue to rise. The products of the industry are vital for industrial development,
personal consumption and modern living, and will stay that way. The norms of industry growth vis-à-vis economic development are, however,
changing. Global demand for polyethylene – a good benchmark for the modern chemical industry (as sulphuric acid was in the past) – is for the
first time in over 75 years expected to lag global GDP growth, but that is not applicable to India where per capita consumption of the polymer (and
most chemicals and materials) is far below global averages let alone levels of developed nations. An important reason for this global slowdown in
polyethylene consumption is the mounting sustainability pressures on the plastics industry.

The confidence of continued growth in demand for petrochemicals – which account for about three-quarters of demand for all chemicals in
India – is evident from the new-found interest of most oil & refining companies in this space. While India will continue to need refined products
to fuel economic growth and to provide feedstock for value-added derivatives, the pattern of consumption of fuels will change as electrification of
mobility and other industrial applications gains momentum. How much of an impact this will be and in what timelines it will unfold is hard to figure
and there are as many opinions as there are experts voicing them.

In such uncertain times, chemicals offer a safe sanctuary of sorts, but, as the last two years have shown, there are stiff challenges that need
to be overcome. These can be bucketed into two broad categories: domestic ones which are our own doing and reckoning; and external ones
shaped by actions over which we have little say.
Making the land & infrastructure available
For all the talk of improving the ease of doing business, India is still seen as a difficult place to set up and start new ventures. This is not just
the view of multinationals who typically eye multiple countries when evaluating investments, but even our own investors. Land acquisition – where
everything begins – is a tiresome exercise, and most States are not particularly keen on having the chemical industry in their turf. This has led to a
warped development wherein much of the industry is concentrated in Gujarat and Maharashtra (in that order). This must change, and the industry
needs to find new homes for more sustainable and long-term development.

The PCPIR policy unfolded more than a decade ago has failed to take-off in part because it had unrealistic expectations of land needed; and was
unclear on the role of the anchor investor who had to carry the full burden of infrastructure development. A retuned, more realistic policy has now
been framed, and not a day too soon. There is now a healthy competition between coastal States to attract investments in chemical manufacturing
in newly planned clusters, and this is a welcome development. For now, we have only Dahej to show as a planned industrial cluster of some scale
and quality, and for a country of our size that is truly a tragedy.
Benefits of chemical clusters
In any new cluster the anchor investor – usually a refining company – plays an important role. They will be first to move in, add to the infrastructure
available, and, very importantly, be the fountainhead for feedstock that others can build upon and develop a downstream industry spanning
bulk, fine & speciality chemicals. Such an approach is commonplace in the well-known Chemical Parks of the world, but not so here, and this
failure of planning has held back investments. Not all chemical projects will be of interest to the anchor investor – for reasons that have mostly to
do with scale of opportunity and the markets it serves – and it is vital to nurture partnerships, built on commercial terms for feedstock supply, to
enable them. There are many models for feedstock transfer pricing, even in India, and that should not be a deterrent. Government officials have in
the past announced that new crackers will be required to set aside a portion of the olefins and aromatics produced for utilisation by third parties,
but this has never been formalised, possibly due resistance from the anchor investors themselves or the misplaced fear in government that this
will amount to interfering in free market economics.

Cluster development of the chemical industry makes not just for a more efficient industry, but also a safer one. The Indian chemical industry’s
track record of safety is poor and misdeeds of a few haunts the industry as a whole. Improving this has to be accorded the highest priority of

Chemical Weekly March 11, 2025 131

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