Chapter 2: Status of Indian Chemical Industry

2.1 Brief Background

The Indian Chemical Industry plays an important role in the overall economic activity of the country. The Industry is made up of Drugs & Pharmaceuticals, Petrochemicals, Inorganic & Organic Chemicals, Fertilizers, Pesticides and Agrochemicals, Dyes and dye intermediates, Pigments, Plastics, Leather chemicals, specialty chemicals, etc.

The process of industrialisation in India in the first four decades after independence was governed by two considerations - import substitution and industrial licensing. The impact of the national policy on import substitution has an impact in all segments of the chemical industry. The share of value of output of US$28 billion for various sub-sectors of the Indian Chemical Industry may be seen from the Figure-1 below: -

As can be seen, Fertilizers account for 18% of the value of the output while Petrochemicals and Pharmaceuticals account for 22% and 15% respectively. The remaining 45% includes industries that manufacture products that have wide applications and is the subject of this report. While late 60s, 70s & 80s saw the rise of fertilizers, pharmaceuticals & petrochemicals; the organic chemical industry had been growing since early 60s. Subsequently, in the 70s to 90s, a group of Dyes & dyestuff industry especially in the Small Scale sector and a group of specialty chemicals manufacturers emerged.

The global chemical industry is currently valued at USD 1.5 trillion, representing approximately 6% of the global GDP. The total world trade in chemicals is estimated at US$ 400 billion or 10% of the value of global trade. Following table summarizes the performance of the top ten corporations in the Global Chemical Industry.

Source : ICICI's Report on the Chemical Industry (Jan-2002)

The Indian Chemical Industry has a turnover of US $ 28 billion (Rs.1200 billion) and accounts for 7% of the total Indian Gross Domestic Product (GDP). The profitability in the industry has been severely affected during 1995-1996 to 1998-1999. While gross turnover has increased, the industry has experienced a slump in the margins from 5.7% to 0.8% over this period. Even Net profits have fallen by about 5%. The fall in the profit margins has mainly affected the Dyestuff industry, Organic chemicals and Inorganic chemicals.

In spite of diminishing margins, this industry is a major exporter of agro-chemicals, pharmaceuticals, dyes & pigments and certain specialty chemicals. India is the second largest producer of pesticides after Japan, ranks 12^th in pharmaceuticals production and is emerging as one of the top 5 players in selected petrochemicals like Pure Terephthalic Acid (PTA), Para-xylene, and Polypropylene. In Dyes, India accounts for about 6% of the global turnover. For products like Vinyl Sulphone & Castor Oil, India contributes more than 80% of the global turnover.

In addition to a large number of persons employed directly and indirectly by this industry, it provides excellent opportunities to the large pool of scientific manpower within the country to utilise their knowledge and skills to create value and improve the quality of life of the ordinary citizen. There is potential to replicate the success of the Information Technology & Pharmaceuticals sectors, in this industry as well. Its contribution in terms of percentage share in industrial output and exports, to national revenues and GDP is graphically represented in the Figure 2 below.

Value : $ 28 billion (Rs. 1200 billion) Year: 1999-2000

Source: Chemical Industry Digest - January 2001

2.2 Chemical Industry & Society

The Chemical Industry occupies a pivotal position in meeting some basic human needs and in improving the quality of life. It is extremely important to the economy and is an integral part of our everyday life. We have a high population base and thus, we face formidable problems in providing sufficient food, medicines and adequate shelter. The chemical industry provides the vital inputs required to augment food production and save crops from attack by a variety of pests in a safe and selective way. The marked improvements in the average life expectancy of our countrymen can be at-least partially attributed to the Chemical Industry which has provided life saving drugs and other chemicals required for managing public health. The problem of housing can be tackled only with the assistance of the Chemical Industry. It plays a crucial role in housing development.

The Chemical Industry is rooted in science and provides valuable, and often indispensable inputs to a large number and variety of industries. Thus, without Chemical Industry, there would be no electronics or microelectronics, refrigerators, recording tapes, automobiles, laser discs, super magnets, processed foods and virtually all consumer products etc. Even the power industry depends on the Chemical Industry for its operations. The use of chemicals (ion exchange resins) becomes indispensable for removing dissolved salts needed in boilers and other applications. It is even more striking that gold, which is adored in our country, cannot be beneficiated without cyanide. Phosgene is the key ingredient in the manufacture of Polyurethanes and polycarbonates and agrochemicals. Apart from providing a variety of drugs for alleviation of human sufferings, this industry provides safe anaesthetic agents and high quality artificial aids including a hip joint made from ultra low molecular weight polyethylene. Other health products include dental fills, contact lenses and dialysers also depend on the Chemical Industry.

We live in chemical age and most of the products we buy for every day use, to make our lives more comfortable are intimately linked to the use of chemicals. Polymers have become an integral part of our daily life. Outputs of this industry include a range right from the clothes we wear to the combs and toothbrushes we use to the cooking utensils in Indian houses.

This industry now faces the challenge to operate in an environmentally acceptable manner. Chemicals are globally tradable and unless Chemicals produced in India are cost effective they cannot contribute usefully to the Nation's economy. Users of Chemicals would increasingly free to import, unless domestic manufacturers can compete with the best in the world in term of cost and quality.

As mentioned earlier the Chemical Industry touches almost each and every aspect of our daily life. Figure 3, which follows, indicates the various end uses of the output of the Chemical Industry.

Source: Figure complied from inputs contained in an article by Prof. M.M. Sharma in Indian Chemical Industry - emerging scenario by ICMA.

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