Intro: The attractive investment opportunities existing in manufacture of chemicals and in development of new environment friendly technologies must be exploited to the hilt for India’s super growth.
Chemical industry is one sector where India already has a strong manufacturing presence globally. We need to see where our price competiveness needs to be enhanced and how. There is lot of demand potential in the domestic market as much as in the other developing countries of the world, besides, of course, the developed countries who are deficient in raw material and skilled manpower resources. India’s position in this sector shall be clear by gleaning at the under mentioned facts.
India is the third largest producer of chemicals in Asia and sixth by output, in the world. The chemicals industry is a key constituent of the Indian economy, accounting for about 2.11 per cent of the nation’s Gross Domestic Product (GDP). India is currently the world’s third largest consumer of polymers and third largest producer of agro-chemicals. India’s proximity to the Middle-East, the world’s source of petrochemical feedstock, makes for economies of scale and provides it the natural, geographical competitive advantage in manufacturing. The estimated size of the global chemicals market is USD 144 Billion. India accounts for approximately 16 per cent of the world production of dyestuff and dye intermediates. Chemicals are one of the most diversified sectors, covering more than 70,000 commercial products.
There are many reasons for pouring in new and big investment funds into the chemicals sector in India. A large population, dependence on agriculture, and strong export demand happen to be the key growth drivers for the industry. A global shift towards Asia as the world’s chemicals manufacturing hub because of lower production cost is very important factor justifying investment in this sector in India. Apart from skilled and semi skilled science graduates required for this sector, India has world class engineering and Resource and Development (R and D) capabilities. What is needed is stronger outlay for R&D by corporate houses, which will help in up gradation of domestic technology without paying through the nose for imported, technologically patented processes and products.
The government has allowed 100 per cent Foreign Direct Investment (FDI) under the automatic route in the chemicals sector, subject to all the applicable regulations and laws. Certain products such as wax candles, laundry soaps, safety matches, fireworks and incense sticks fall under items reserved for the Ministry of Micro Small and Medium Enterprises (MSME) sector in which FDI beyond 24 per cent is permitted under the government route. This is a huge incentive for foreign investors because this sub-sector caters to a gigantic consumer base. But, in the opinion of the writer, we should look at domestic investment in this area and endeavour to establish mid or large sized factories located in Special Economic Zone (SEZs) where they enjoy fiscal concessions. Only such upscale manufacturing units can beat the competition posed by China.
Policies have been initiated to set up integrated Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR). But these policies should not remain confined to files and papers. They should be implemented earnestly and within a time horizon with constant monitoring. PCPIR will be an investment region spread across 250 square kilometres for the manufacture of domestic and export-related products of petroleum, chemicals and petrochemicals. Another excellent policy initiative but an action plan to implement it in phases should be set in motion.
The government had announced many fiscal concessions and incentives in the budget for 2014-15 including customs duty reduction on imported raw materials and investment allowance (additional depreciation) on manufacturing companies in the chemicals sector. Tax reductions have been announced for companies engaged in in-house R&D. Fiscal incentives in the nature of State incentives, export incentives and area based incentives have also been provided. The area based incentives are incentives for units in SEZ/ National Investment and Manufacturing Zones (NIMZ) as specified in respective Acts or setting up projects in special areas like the North-East, Jammu & Kashmir, and Himachal Pradesh and Uttarakhand.
India should intensively focus on chemicals and process industry that develop anti-pollution technologies, equipment and processes as also environment friendly and try to develop such processes and products by taking leaves from our ancient scientific texts which provide accounts of sustainable, environment friendly technologies. We can show the world new direction and mitigate the bad effects of Western technologies on environment, which have become a matter of serious concern of late.
(The writer is a senior columnist)