Overview of Indian Chemical Industry

                        Indian Chemical Industry is contributing around 6-7 percent of the Indian GDP(Gross Domestic Production). It touches our lives in many different ways. Whether it is thermoplastic furniture we use, or a synthetic garment we wear, or a drug we consume – we are inextricably linked to it. This industry has key linkages with several other downstream Industries such as Automotive, Consumer durables, Engineering and Food processing. The Chemical Industry in India has the potential to grow to around USD(American Dollar) 100 billion by 2010. This needs an annual growth rate of 15.5 percent, for this Speciality and Knowledge Chemical segment must grow at 16.4 percent(Current rate 7.9 percent) and 27 percent(Current rate 12.3 percent), while Basic Chemical segment would need to sustain current growth rate of 7.7 percent. At USD 100 billion, the industries contribution to India’s GDP will grow to 12 percent and its share of the Global Industry will increase from 1.9 percent to 3.9 percent while if the current growth rate are maintained, the Industry is expected to grow to USD 60 billion by 2010. In that case, the Industry’s contribution to India’s GDP would increase to 7.1 percent and its Global Share would increase to 2.3 percent. The size of the Global Chemical Industry is estimated at approximately USD 1.5 trillion. The Indian chemical industry remains a net importer with a trade deficit of around USD 1.3-1.8 billion annually.

                       The Indian chemical industry is characterized by (1) high domestic demand potential (2) high degree of fragmentation and small scale of operation (3) limited emphasis on exports due to domestic market focus (4) low cost competitiveness as compared to other countries due to higher cost of power and other utility, import duties, taxes, higher cost of capital and raw material and poor infrastructure facility (5) low focus on R&D despite innovative processes to synthesize product cost effectively.

                      Some Indian companies have created sizable international operations also. Some Global companies have already given better performance in India. The operating profit margin(OPM) of these Indian subsidiaries range from 8 percent to 13 percent as compared to the global OPM range of 1 to 6 percent.

                     Globally Chemical Industry is a knowledge based industry with significant investment in R&D. The industry supplies to all sector of the economy and produces more than 80000 products. World wide market share Chemical Industry is (1) Asia 26% (2) Western Europe 43% (3) North America 22% (4) South America 4% (5) Rest of the world 5%.

                    Raw material costs range from 30 to 60 percent of sales, and are a major constituent of costs. Natural Gas or Crude is used to fulfill feed stock requirements. This makes the industry vulnerable to fluctuations in Oil and Gas prices as well as supply disruptions.

                   Chemical industry can be classified into three segments Basic, Specialities and Knowledge Chemicals. The examples are :

(1) Basic: Petrochemicals, Fertilizers, Inorganic chemicals, Alkalies, Chloralkalies, Aromatics, Thermoplastics, Thermosets and Other Industrial chemicals.

(2) Speciality: Adhesive, Sealant, Catalysts, Industrial gases, Paints and Coating, Pharma additives, Lubricants, Water treatment chemicals, Plastic additives

(3)  Knowledge: Agrochemicals, Pharmaceuticals, Biotechnology

                  Globally Basic Segment accounts for about 47 percent of the Industry, Speciality 25 and Knowledge 28 percent. Knowledge chemicals are the fastest growing segment. In Basic Chemicals manufacturing raw material and energy costs form the largest cost components. Basic chemicals are used by other industries as raw material to give end products. The composition of Global Basic Chemical Industry is Petrochemical derivatives and other industrial chemicals 50%, Fertilizers 6%, Inorganics 12%, Petrochemicals and intermediates 32%.

                Speciality chemicals are characterized by vastly differentiated products with high degree of value addition. Production units are smaller than basic chemical units and have a better flexibility. Capital investment requirements are low but investment in R & D to develop new products is high.

               The Knowledge Chemical Segment consists of highly differentiated chemical and biological substances used to induce specific outcomes in Human, Animals, Plants and Other life forms. The segment is characterized by high degree of research, intellectual capital and skilled manpower. This segment relies extensively on R & D for new products.

               Indian Chemical Industry ranks twelfth in the world production of chemicals and enjoys an impressive Growth Rate of 8-9 percent over the last few years. This growth rate is twice the Asian growth rate.

               Per capita consumption of some Petrochemical Derivatives in India Vs World Average indicates large opportunities at home.

                Same way Global Nutrient Consumption in Agriculture sector per hectare of arable land indicates the reason for low level of productivity of Indian agriculture.

               Also see the figures of per capita Polymer Consumption:

               R & D in India is far below the global level. Indian industries have failed to invest in product R&D due to lack of skill and funds. Large pharma companies have invested in this segment. Some companies have their In-House R&D Departments. Several others have entered into tie-up with research institution like National Chemical Laboratories(NCL), IITs(Indian Institute of Technology), UDCT(University Department of Chemical Technology), CSIR(Council of Scientific and Industrial Research) and many others. Government offers number of Incentives to promote R&D facilities in the industries like tax deduction to expenditure for research and donations to research institutions and also tax holiday for R&D Company.

              Globally R&D is a fundamental driver of success for the pharmaceutical industry. Global R&D spent and Indian R&D spent of pharmaceutical industry as a percent of net sales are18.5 and 2% which suggest large gap in R&D spending.

             Annual per capita Drug Expenditure in USD

             Also see the Figures of per Capita Pesticide Consumption