Chemicals
Background
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Indian chemical industry has a strong and diversified base encompassing many areas such as organic and inorganic chemicals, plastics, fibres, dye stuffs, paints, pesticides, insecticides, speciality chemicals, drugs and pharmaceuticals.It is perhaps one of the most diversified of all industrial sectors covering more than 70,000 commercial products. Broadly, the sector can be categorised into Organic and Inorganic chemicals. |
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The growth in this sector has consistently been higher than the average rate of growth in the manufacturing sector in India. The current annual turnover in the chemical sector is around Rs. 90,000 crore of which roughly one-third each is contributed by the three main sub-sectors, namely, chemicals, petrochemicals and pharmaceuticals.
The sector, as a whole, accounts for about 17.6% in the output of manufacturing sector, 13-14% in total exports and 8-9% in total imports of the country. It contributes about 3% in GDP. The chemical industry also contributes a sizable 20 per cent of the gross revenues by way of Excise and Customs Duty.
Inorganic Chemicals
With a size of around Rs. 25-27 billion, the inorganic chemicals industry accounts for around 0.1% of the GDP. The key inorganic chemicals are titanium dioxide, carbon black, and calcium carbide. Titanium dioxide is used as a pigment to provide whiteness and opacity to products such as paints, coatings, plastics, papers, inks, foods, and most toothpastes. In cosmetic and skin care products, titanium dioxide is used both as a pigment and a thickener. Carbon black is used mainly as a reinforcing material in the rubber industry. Other user areas include inks, paints, plastic and paper. Calcium carbide is used in carbide lamps, which find use in coal mines. The inorganic chemicals registered a growth of about 31.88% over a period of 2002-06.
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Although the sector’s contribution to the GDP may appear to be insignificant, the industry derives its importance from the fact that it caters to a host of end user industries such as paints and dyestuff, tyres, leather, paper, detergent, explosives, rubber chemicals, cigarette, etc. |
Organic Chemicals
The organic chemicals industry accounts for around 0.2% of the GDP. Organic chemicals are a group of petroleum-derivative chemicals (also known as petrochemicals) used as intermediates to produce other chemicals, which, in turn, are used to manufacture a wide variety of end-use products, including construction materials, apparel, adhesives, plastics, and tyres. The majority of the organic chemicals are derived from benzene, a petroleum derivative itself. The key organic chemicals are acetic acid, methanol, formaldehyde, acetaldehyde, chloromethane, phenol, benzene and its derivatives (that include nitrobenzene, aniline, ortho nitro chlorobenzene or ONCB, para nitro chlorobenzene or PNCB). The organic chemicals exports registered a growth of 32.88% over the last four years (2002-6).
The industry derives its importance from the fact that it caters to a host of end user industries such as paints and dyestuff, fertilisers, textile, pharmaceuticals, insecticides and pesticides, food processing, leather, paper, detergent, explosives, rubber chemicals, cigarette, etc.
Size
- Over $40 billion industry constituting more than 6% of GDP and 12.5% of the industrial production
- India is the 12th largest producer of chemicals in the world : Manufactures more than 70,000 product; Exports of over $12 billion
- However, India constitutes a relatively small portion of the global market
- 1.9% of global sales and 1.5% of international trade
Structural Characterstics
- The Chemicals industry in India is fragmented with few large companies with over 6,600 chemical manufacturers
- The pricing power of the inorganic players is under constant threat (because of cheaper imports in many product segments).
- Excess capacity build up for certain inorganic products, cheaper imports and existence of a large number of players result in significant price competition in the market.
- The organic industry functions on a lower scale of operation (in comparison with the global players), and cannot exploit economies of large-scale operation. This coupled with the capital-intensive nature of the industry translates into a higher unit cost of production.
- Non-availability of raw materials for organic industry at reasonable prices and of consistent quality also affects the competitiveness of the industry, thus, acting as a constraint in some cases.
- Basic chemicals constitute major share of exports
- Major international companies such as BASF, Dow Chemical, Bayer and Du Pont have operations in India
Policy
· With the chemical industry now having reached a stage of maturity this sector has been to a large extent, de-regulated. Licensing requirements have also been done away with except for hazardous chemicals and a few specified drugs.
· Entrepreneurs have allowed to set up chemical industries following the Industrial Entrepreneurs’ Memorandum (IEM) route.
· Tariff levels have been reduced substantially for most chemicals and petrochemical products after the announcement of the liberalised policy, and majority of the chemical items can now be freely imported or exported through simplified procedures.
· 100% FDI under the automatic route is allowed for all chemical items except hazardous chemicals where Government/FIPB approval and licence to manufacture are required.
· Plans are underway to set up port based chemical parks in SEZs to encourage clustering, provide infrastructure and enable tax concessions.
· Downstream SEZs have been planned to use the output of Chemical Parks.
Outlook
- Projected to grow to an $80 billion industry by 2010
- Growth rate of over 15% p.a. projected over the next 5 years
- Share of the global industry could increase from 1.9% (2001) to 3.9% (2010)
- India is expected to be the 3rd largest polymer consumer by 2010