Opportunities And Challenges - India offers many opportunities for the chemical industry. With rising urban and rural incomes, consumption has gone up, leading to greater demand. Since the chemical industry caters to nearly every end-use industry, it is well positioned to grow further. However, to generate profitable growth, the Indian chemical industry needs to have a thorough understanding of the economic framework, resources and market structures.

The opportunities for the chemical industry in India are manifold. Today, India is the third largest market for chemicals in Asia and is expected to grow 7.6% a year till 2020. With increasing purchasing power for all groups of the population, consumers want to buy longer lasting goods and goods that improve their quality of life and status. This offers tremendous scope for innovations from the chemical industry. Hence the demand for chemicals in India is founded on a strong domestic demand rather than on exports.

India is a large country with federal regulations, but it also has a pronounced regional diversity. Customers of the chemical industry are located in hubs around the city centers of Mumbai, Chennai, Ahmedabad, Bangalore and Delhi. For the pharmaceutical and coatings industry, Hyderabad also plays a big role. The state of Gujarat in northwest India is working progressively on an industrial policy specifically for the chemical industry. Overall, the country is making huge efforts to improve and expand basic infrastructure such as ports, roads and power supply.

India's neighboring South Asian countries Pakistan, Sri Lanka and Bangladesh are also growing as attractive markets for many customer industries. Last but not least, investments in research and development are strongly fostered by policymakers, especially in pharmaceuticals and high-tech industries. But in spite of these developments, India is not an easy market for chemical companies.

Focus on Costs and Availability

Being an oil importer, the country and its local, national and private companies did not focus strongly on the expansion into basic chemical building blocks. Cracker products are still not largely available, although the recent investment in two steam crackers will expand the Indian ethylene capacity from 2.8 million tons to 4.7 million tons.

Refinery capacity is limited to around 200 million tons. In spite of strong investments in the national energy infrastructure, there is a large demand-supply gap. As a consequence, most chemical companies run their own power generating units, which increases manufacturing costs strongly because of lack of economies of scale.

Another cost driver is logistics. The national government and local authorities have made major efforts to expand and improve roads and ports. Nevertheless, demand far exceeds the availability of infrastructure and logistics services. This leads to long import procedures and transportation time.

In most parts of the country, neither rivers nor pipelines for transportation of bulk materials are available. Hence, road transport remains the only option. Of particular relevance for the chemical industry is the quality of warehouses, tank farms and trucks to store and transport its hazardous goods. Special care needs to be taken in selecting logistics partners, training support and upgrading.

People Count

India has a young, highly educated and skilled workforce, with an abundance of well-educated engineers. Skilled workers with high motivation are also easily available for positions in sales, marketing and supply chain as well as laboratory and technical support functions. But when it comes to hiring the right talent with relevant industry knowledge, the chemical industry faces a tough challenge. Senior scientific research roles and higher managerial levels are difficult to fill. One reason is that in large Indian cities the demand for highly skilled employees is very high. This leads to rapidly increasing salaries and a volatile employment situation.

Another aspect is the lack of experience that the young workforce has in meeting the requirements of senior managerial roles and scientific depth. In chemical operations, plant operators and craftsmen often need intensive training by the company to run modern chemical plants. As of now, India does not have an education system based on education-cum-work-experience. Chemical companies can change this by collaborating with academic institutes.

BASF is partnering with academic institutions to give relevant industry experience to college students through workshops and internships. Six years ago, BASF began a Ph.D. program at its R&D center in Mumbai, aimed at students with strong practical skills who did not have the opportunity to join a prestigious research institute. In 2010, the first group of Ph.D.s completed the program and joined BASF as employees. BASF has also offered to work with state governments to take up skill development initiatives that can increase employability in India's growing chemical industry.

Complex Regulatory Framework

Being a federal country with 28 states and seven union territories, India's duty and taxation system is complex, expensive and puts a burden on intra-India trade. Owing to the complex regulatory framework, chemical companies are advised to keep their business model simple in order to contain costs. Indian authorities are set to introduce major tax reforms in goods and service tax (GST). If implemented, it will benefit the chemical industry immensely as various levies such as excise, service tax, states tax, value added tax (VAT), entry tax and purchase tax will be eliminated and replaced by a single tax.

Apart from the state of Gujarat, which has an industry-specific investment policy, many states do not provide a one-window clearing process for investors, especially when land acquisition is part of the project. The chemical industry still faces considerable challenges regarding the industry's public perception. As a result, many communities do not welcome investments for chemical plants. State governments have responded with in-depth environmental assessments for new projects.

The International Council of Chemical Associations (ICCA) actively supports Indian companies and regulators in spreading Responsible Care principles in India. BASF is supporting this, most strongly by implementing its high international environmental and safety standards in operating its chemical plants in India.