Chemical Industry Provides Excellent Opportunities for Automation Suppliers in India

Ritika Agrawal and Sharada Prahladrao

The ongoing euro-zone crisis has created turbulence in the global economy and spread the fear of economic downturn. Although the survey by International Monetary Fund (IMF) says that India is performing well under the present circumstances, India’s economy cannot remain completely insulated from global happenings.  The factors driving India’s strong performance are: domestic driven economy, sound banking system, relatively strong GDP growth (7.7 percent in Q1), and robust FDI inflow. According to most analysts, India’s economic growth will be sustained, albeit at a slower pace.  This is well substantiated by the manufacturing purchasing managers' index (PMI), which bounced back from 50.4 in September to 52.0 in October, 2011. Additionally, many companies in India witnessed revenue growth during the first two quarters of the current fiscal year, supporting India’s GDP. 

With the chemical industry contributing indirectly to almost every sector of the economy, it plays a vital role in a country’s economic growth. India’s chemical industry, valued at approximately $35 billion is the sixth-largest industry in the world and the third largest in Asia in terms of volume.  India’s chemical industry has a large domestic demand potential as compared to other countries.  Also, it has a diversified manufacturing base with the capacity to produce quality chemicals.  The chemical industry, contributing to over 3 percent of the overall GDP, is an important cog in the wheel of economic growth.  

Chemicals can roughly be divided into three main categories - basic chemicals, knowledge chemicals, and specialty chemicals.  Basic chemicals contribute 35 percent of the total industry size and are a broad category, including polymers, bulk petrochemicals and intermediates and fertilizers.  Polymers include all categories of plastics and man-made fibers.  Knowledge chemicals contribute 30 percent of industry size and include differentiated chemical and biological substances, pharmaceuticals, diagnostics, animal health products, vitamins, and crop protection chemicals.  This sector is characterized by high level of fragmentation. The sector is involved in production of paints, dyes, inks, polymers and a lot of other chemical products. 

Analysis shows that production of chemicals has come down significantly and imports rather than exports of chemicals have increased.  In the private sector, several organizations, such as the Indian Chemical Manufacturers Association (ICMA), and the Chemicals and Petrochemicals Manufacturers Association (CPMA), all work to promote the growth of the industry and the export of Indian chemicals.  Expansion plans range from capacity expansion, modernization to new market entry and diversification of the industry. 

Petrochemical (olefins and aromatics) is a major product of the chemical industry and constitutes over 60 percent of the share by revenue. Demand for olefins is expected to grow by 10 percent per annum, while demand for aromatics is expected to grow at 12 percent per annum over the next 4-5 years.  GDP growth and increased per capita income is driving the demand in end user industries, such as automobiles, consumer durables, textile, packaging, and real estate, thereby stimulating the demand for petrochemicals. 

The major challenge that the chemical industry faces today is the perception that it affects the environment negatively.  The industry is viewed with misapprehensions on the pollution and sustainability fronts.  Products from the chemical industry have altered the quality of life world over and have contributed significantly to our day-to-day requirements.  The negative image is gradually changing due to the efforts of the Indian Chemical Council (ICC).  India’s chemical industry shows comparative promise when compared to the advanced countries. Drugs and petrochemicals are two major segments that are driving India’s chemical industry.  Also, fine chemicals, dyes and intermediates, and knowledge based chemicals are playing a significant role in driving the growth of India’s chemical industry. 

Chemical industry’s contribution to the GDP has stagnated during the past two years due to India’s inability to build competitiveness required to meet global challenges and to develop a larger domestic market through low cost production.  India has the potential to emerge as a major manufacturing hub for the global market. This can happen only with improved competitiveness of its industry apart from innovation and productivity.  In order to be highly competitive and to improve supply chain efficiencies, the chemical industry must look for total cost management solutions and automation.  Automation in chemical plants is highly complex and plays an important role in streamlining processes and reducing costs; therefore, chemical companies must leverage automation to reduce wastage, improve quality and throughput, and gain sustainable competitiveness.  Expansion plans and modernization of various chemical plants are driving the growth of automation business in India.  Automation suppliers should also educate end users about their value proposition.  With this initiative and industry's proactive actions, the chemical industry will witness resurgence in terms of cost competitiveness and growth.