Page 132 - CW E-Magazine (11-3-2025)

Point of View

top-management, and intent and action need to go hand-in-hand; lip-service will just not do! The chemical industry is a hazardous one, but the risks
need to be managed and mitigated. Siting the industry remote from population clusters is very important to do so.

The permitting process – more a State issue than a Central one – also needs urgent rationalisation. There are, for example, unrealistic norms
when it comes to waste discharge into marine bodies, and while some have been rationalised, there is much more to be done, and a science-based
approach is much needed.

Raising the bar of competitiveness
The key to building resilience is through world-class competitiveness. This stems from several factors of which choice of product, scale,
technology, level of integration, and operational efficiency are key. There is a simplistic view that we must make all that we import, but it must
be recognised that there are sometimes very good reasons for not doing what we don’t. Having said that, the list of top-50 chemicals that India
imports, contains several that can be made competitively in the country.
In the past, projects planned were sub-scale due to licensing mandates, poor risk appetite of investors, lack of access to capital and appropriate
technology, etc. All of these have changed to a considerable extent, making a stronger business case for new investments. Indian demand for many
chemicals is now large enough to afford one or even more world-scale plants; access to capital is now relatively easy with capital markets open
to the industry; and the risk-taking ability of entrepreneurs has improved considerably. Most Indian companies are still focused on the domestic
market, and this is fine, as long it does not hinder competitiveness. Exports can serve as a fly-wheel to better operating rates and can be done at
marginal costing. Bear in mind that world trade is today being redefined by tariff and non-tariff barriers, that serve as a moat to outsiders, and in
nearly every part of the world – China, the US and Europe, all come to mind – there is a ‘Make here’ movement of one type or another. The end of
globalisation is upon us; and regionalisation is all the talk today.

Access to technology is also limiting investments in chemical projects in India, and there is no one to blame for this but our own reticence
in investing in process technology development – be it for bulk or fine chemicals. It is a lamentable fact that despite considerable investments
in research institutes in the public sector, there is little to show by way of impactful technologies that others also want. This is in sharp contrast
to China, where diligent partnering between academia, research institutes and industry has led to the emergence of novel technologies some of
which have no parallel anywhere else (think coal-based chemicals, or fermentation-derived ones). If we have no plants for making products as
diverse as titanium dioxide (despite considerable resources of the raw material, ilmenite), the isocyanate MDI, or the basic chemical acetic acid, it
is because the technologies are closely held and rarely available for licensing outside of joint ventures. The world respects technological strength
and in chemicals we have little to boast about. Even for several fine chemicals, investors here have had to go shopping overseas for technologies,
mostly to China. This is a dependence less talked about, but no less detrimental. The recent Union Budget has allocated a sizeable sum of money
to fund private sector R&D initiatives and the chemical industry must participate in its gainful utilisation in partnership with publicly-funded
institutions serving the industry.

One other lamentable aspect of India’s chemical industry development has been the lack of strategic partnerships between stakeholders. This
has led to duplication of efforts and diversion of capital to similar projects, as well as gaps in value chains. This extends beyond manufacturing,
even to procurement. The intermediates and key starting materials needed to make many Active Pharmaceutical Ingredients (APIs) are imported
(mostly from China), even when there is an option to buy locally at a marginally higher price. Sourcing is more often than not seen as an opportunistic
activity, not a strategic one, and the theme seems to be “go where it is cheaper.” What this does is decimate the domestic manufacturing base,
leaving the Indian market exclusively available to manufacturers overseas. A more strategic approach will go some way in supporting new ventures
in this space.

Another aspect of the development of the Indian chemical industry hitherto is that few companies have the ability to capture value across a full
value chain. This is in sharp contrast to China, where in almost all chemicals (and in other industries as well) a complete ecosystem of manufacturing
exists within the company or in close proximity. This vulnerability becomes all too evident when markets take a turn for the worse.

The chemicals business is facing a period of considerable uncertainty brought about by a surfeit of capacity, slowing demand in most developed
markets, and even in China, the largest production and demand centre. This is having dreadful impacts on operating rates, margins and profitability.
But investments still continue to be made in the industry, including in China, and this will drive out uncompetitive producers and lead to significant
consolidation with global consequences.

Investments in chemical manufacturing in India must ensure innate competitiveness and this can come about only through sound policies from
government; availability of world-class infrastructure in dedicated zones where investors can plug-and-play; astute product & technology choices
by project promoters; a relentless focus on cost optimisation through operational excellence; and deployment of new-age digital technologies,
including artificial intelligence across business functions. This is key for resilience in these challenging and uncertain times.
Ravi Raghavan

132 Chemical Weekly March 11, 2025

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