India’s chemical industry feels effect of rising crude prices

Jun 21, 2004 02:00 AM

India’s Rs 1,30,000 crore chemical industry -- the backbone of the basic industry -- is undergoing a silent transition. However, the ongoing wild fluctuations in the crude oil prices- - reflected in the current flare-up of the domestic chemicals and petroleum prices is a matter of great concern for the domestic chemical industry as a whole, feel industry observers.
Even, raw materials price rising is faster than industry players can raise the prices and hence, in turn, this situation could put the commodity chemical and petrochemical pricing under severe pressure, they maintained.

This view was emanated at the recently concluded 2-day seminar on “Rejuvenation of Indian chemical industry”, organised by Indian Chemical Manufacturers Association (ICMA). Vice-president ICMA, D.C. Mehta said, "any sustained flare-up in the international prices will have an impact on global GDP growth rates, which could have impact activities of the export driven sectors such as dyes and intermediates, and speciality chemicals."
The overall impact would be serious furthermore, with the sharp drop in import tariffs which has posed significant challenges for the local chemical industry players. The problems have aggravated since the last decade, Mr Mehta said adding "government should roll-back last 5 % import duty cut in April and there is no need to further cut in any duty except on basic feed stock."

What is more, even when the entry barriers have been pulled down there has been no significant improvement in the foreign direct investments (FDI) in this sector. The attractiveness of the industry to foreign investors has declined and this is apparent from the data on FDI approvals granted.
"Government need to boost the moral of local chemical industry through providing level playing field. Also boost investment in chemical sector in India, and simultaneously should the encourage the local players to make investment in overseas market particularly in Middle East countries, where there is growing opportunities in for this sector", said Mr Mehta adding that, "it is time for the government to shift focus from Free Trade Agreement (FTA) to entrepreneurs base investment plan, joint venture, technology tie-ups etc. India has not any gain from any FTAs, particular to no benefits have been received to the local Chemical industry."

Further, tougher times are ahead for the chemicals industry, more so with the global IPR standards round the corner as part of the WTO requirements. The pressures on developing innovative, non-infringing processes will intensify even in India. This will call for significant investments in technology either through in-house efforts, in partnership with publicly funded labs, or by direct outsourcing.
While addressing the participant, Chemicals and Petrochemicals (C&PC) Secretary of India Pratyush Sinha says, "The chemical and petrochemical industry needs to concentrate on collaborations for cluster development in order to reduce the infrastructure cost and to improve proximityto the suppliers. The industry would gain from the creation of mega-chemical industrial estates".

According to Mr Sinha, in the era the competition, local petrochemical industry is facing severe obstacles like absence of world class infrastructure, high power tariffs, scarcity of capital and low investment in R&D.
"Petrochemical industry needs to focus on all these and also on the promotion of plasticulture, and its applications in water management, irrigation and agriculture, apart from domestic consumer goods", Mr Sinha said. Lastly, Indian chemical industry ranks 12th in volume terms in the world production of various chemical products. Outsourcing has opened up new opportunities for those Indian companies which have expertise in chemistry, technology, process development, upgradeability etc. The low cost structure in India is an added advantage.

Source: Indian Express Newspapers
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