To achieve the Government of India's vision of "Viksit Bharat 2047," it is essential to build substantial manufacturing capacities for chemicals and allied products. This step is crucial for promoting self-sufficiency and reducing import dependence. However, there is little evidence that progress is happening at the required scale. Capital expenditure in India's chemical and allied industries is advancing at a very slow pace.
Despite several proactive measures by the government, significant infrastructure investments, and growing demand for chemicals in various growth-oriented sectors, many Indian corporates appear reluctant to invest. This hesitation persists even though numerous companies in the chemical and allied sectors have performed well in recent years, generating surplus funds for investment.
India’s chemical industry accounts for only 1.98% of the global market, which is a dismal figure considering the country’s size and population. In contrast, China’s chemical industry has grown exponentially and now holds a dominant share of the global market. While China’s share was just 3% in 1995, it has surged phenomenally since then. Indian chemical companies have much to learn from their Chinese counterparts.
The spectacular growth of China’s chemical industry can be attributed to several factors. First, China’s vast population and economic growth create significant domestic demand for chemicals. The Chinese government’s proactive industrial policies have also been instrumental in this growth. Multinational companies are incentivized to invest in China with favorable conditions, which, in turn, create healthy competition between domestic and multinational companies.
China has focused on its strategic advantages, such as coal-based chemical projects, and has aggressively pursued technological advancements through strong research and development (R&D) initiatives. Domestic companies, supported by multinational collaborations, have improved their technology standards. The private sector in China is vibrant and entrepreneurial, further contributing to the industry's growth. Additionally, Chinese companies aggressively market their products globally, increasing their international presence.
The Indian chemical industry faces numerous challenges. While demand for chemicals is steadily growing due to the economy's expansion, domestic production capacity has not kept pace. This mismatch has led to a high dependence on imports, particularly from China, yet Indian importers seem unconcerned about this reliance.
Insufficient R&D investment is another significant issue. India spends far less on R&D than the global average, with states like Tamil Nadu, Karnataka, and Punjab allocating only 0.01%, 0.07%, and 0.11% of GDP, respectively, to research. Many Indian companies prefer to purchase technology from abroad rather than developing it domestically. This over-reliance on imported technology limits innovation and growth.
India has become one of the world’s largest importers of chemicals and allied products, with imports increasing alarmingly. This dependency undermines domestic industries and raises concerns about self-reliance.
The most significant challenge for the Indian chemical industry lies in technology development. Most R&D in India is carried out by government-funded institutions like CSIR labs, universities, and a few large corporations. These efforts mainly focus on application development rather than creating core technologies. Greater collaboration between corporates and CSIR labs could enhance productivity. Partial privatization of CSIR labs might also be considered to boost motivation and efficiency.
Many research projects in India face inordinate delays, reducing their relevance. Indian companies must embrace the inherent risks of R&D to foster innovation. A coordinated national strategy to identify R&D priorities, supported by government funding and timelines, is essential.
Success in R&D requires a sense of national pride, ensuring time-bound, cost-conscious, and aggressive efforts. India must encourage innovation, develop new molecules, and explore untapped opportunities in chemical research. With dynamic R&D initiatives and a focus on overcoming technological challenges, the Indian chemical industry can thrive both domestically and globally.
---
*Director, Nandini Consultancy Centre
Comments