Budget is well-intentioned, reformative, but issues of chemical industry unaddressed
Sunil Lalbhai March 2, 2015The size of the world chemical industry is about $4.3 trillion growing at 2.5 per cent. India comes at a distant number seven ($99 billion), after China ($1.46 trillion), the US ($640 billion), Japan ($203 billion), Germany ($200 billion), South Korea ($179 billion) and France ($103 billion). This reflects the hidden and untapped potential for the country to become a hub for chemical manufacturing.
The Budget is well-intentioned, reformative, rehabilitative, pragmatic, inclusive and growth-oriented. The overall positive vibrancy created and the measures announced to boost expenditure in infrastructure and the expected high GDP growth rate of between 8 and 8.5 per cent in 2015/16 will definitely have a rub off effect on the Indian chemical industry. Reduction in customs duty on certain inputs (like naphtha) will also help.
Having said this, it may also be pertinent to note that several measures represented by the chemical industry (which constitutes about 15 per cent of the manufacturing GDP) have not been addressed, and I hope these will be considered in the near future.
These are mainly simplification of regulatory processes and compliance-related issues, rationalisation or phasing out of Free Trade Agreements (which lead to inverted duty structures), reduction of import duty on feedstock such as ethanol and methanol, focus on and support to speciality chemicals, facilitation of integrated clusters for reducing effluent treatment cost, treating certain agrochemicals on par with fertilisers and reducing excise duty thereon, uniform VAT structure (of 2 per cent) on pesticides to avoid illegal movements across states, and establishment of a technology upgradation fund.
As per global consulting firms, it is possible to increase the size of the Indian chemical industry to $200 billion in five years. It will have to be a collective endeavour if this aspiration has to be converted to reality.
The companies that are part of the Indian chemical industry will also have to take the responsibility and take initiatives to improve their:
i) Market reach (distribution) ii) Customer service (delivery, technical support) iii) Manufacturing processes (efficiency, environment, quality) iv) Manufacturing facilities (safety, health), and v) Research and development (innovation).
On the other hand, the government of India will have to support the companies by way of:
i) Developing infrastructure (utilities, roads, ports) ii) Logical import duties on products (cost leadership) iii) Flexible (not irresponsible) labour laws (productivity) iv) Incentives to neutralise the heavy tax structure (cost leadership), and v) Uniform standards for environment protection (cost structure).