Published on May 30, 2014

In terms of volume, India is currently noted as the third largest Asian producers which accounts for 3% of the total global chemicals. Indian chemical industries might augment their profitability by focusing on the key strategic cost management drivers in a vastly competitive marketplace. Over past few decades the Indian chemical industry has become more refined producer of R&D intensive chemicals from non-discriminated basic chemical manufacturing. The chemical industries were distinguished by high entry barriers that are capital disbursement and regulations, lofty volumes and low demarcation when it had started from the basic chemicals like fertilisers, petrochemicals, bulk chemicals and many more.

Furthermore differentiated on quality and innovation and significant value-add was the next stage of evolution of manufacturing specialty chemical such as resins, adhesives and other specialty and currently the industry is potentially competent of producing biotechnology and pharmaceutical products as well as agrochemicals which significantly involve R&D and differentiated chemicals.

According to the projection done by FICCI, over the fiscal year 2006 to 2012 the Indian chemical industry has grown at 10.8% CAGR and at present it is estimated to be Rs. 6300 billion. For about half of the Indian chemical industry like base chemical including fertiliser and petrochemicals are followed by pharmaceuticals and specialty chemicals, moreover compared to base chemicals, knowledge and specialty chemical segment are budding more rapidly.

The Indian chemical industries are focusing on the three key strategic cost management drivers – scale and scope of operation and a manufacturing location.

On the competitiveness of companies, especially in base chemicals such as petrochemicals, fertiliser, organic and inorganic, the scale of operations can have an important demeanor, whereas in Indian petrochemicals, players have been benefit by scale of operations and to collision the performance of organic chemicals, companies negatively small scales of operations prolongs. On the other hand, for base petrochemicals and downstream products, the Indian petrochemical companies have moderately higher scale of operations.

Moreover, according to the analysts, India has one of the leading petrochemical companies  whereby Polypropylene (PP), Monoethylene Glycol (MEG) and Paraxylene (PX) petrochemicals are noted as the fifth largest producer of the world and Purified Terephthalic Acid (PTA) is noted as the ninth largest producer of the world. However, Polyester Fiber and Yam are the largest producers in the petrochemical world. Moreover, the competitiveness of Indian companies will likely rise due to planned investments that were announced in basic petrochemical sector.

The third strategic level is the scope of operations which can influence a long term competitiveness of a company and rivets decisions pertaining to forward and backward amalgamation of companies. This factor is mostly seen in companies dealing with fertilisers, paints, petrochemicals and chlor-alkali segments. Most of the leading companies have collaborated with global companies to make sure of the supply of rock phosphate in the fertiliser segment. Similarly, leading Paints & PVC manufacturers have bespoke production of emulsions as an effort to backward integrate resin manufacturing . Whereas, in the most of the industries such as petrochemicals, chlor-alkali and fertilisers forward integration can be seen.

Availability of feedstock is noted as one of the major determinants of the manufacturing location for example, in Gujarat due to ease of availability of limestone and common salt soda ash manufacturing is concentrated, which is a key raw materials for this product as well as reliable power supply. Another vital determinant of the manufacturing location is costs and alleviate of related to distribution for an instance Formaldehyde is easy to produce and its production is by and large close to the point of consumption.

Hence, with the rising consumption in the end user industries the Indian chemical industry is growing and the demand in few of sectors are lagging behind due to the domestic production which will in turn lead to a rising dependence on imports.