Indian Chemical Industry is the 13th largest chemical industry in the world. As of 2008, its size is approximately $35b which is 3% of Indian GDP (Source: http://chemicals.nic.in/chem1.htm). The industry employs about 1million people. KPMG in its report released in the year 2002 assessed that under optimistic and realistic conditions the industry by 2010 can reach a size of $100b and $60b respectively. However, as of 2008, the industry size has only reached about $35b, just a $7b increase from the year 2002.
Here are a few thoughts on what could be done to improve the size of this industry. Please post your thoughts too in this blog.
1. CONSOLIDATION: The industry is highly fragmented with as many as 1900 companies. Consolidation will help to increase efficiency and reduce costs. Further it will also help in pooling money to invest in Research and Development which is a need for this industry.
2. EXPANSION TO GLOBAL MARKETS: Huge Domestic market size has helped Indian companies in the past and is continuing to do so in the current global scenario. However, this narrow focus will not allow increasing revenues in the long run. Aggressive expansion to global markets will be required to increase revenues. Further, it will also help to increase quality, efficiency and performance. Government on its part should not try to protect the industry. Free passage of goods should aid in strengthening quality and efficiency.
3. INVEST HEAVILY IN GENERIC DRUGS: Companies such as Ranbaxy, Dr.Reddy’s Labs are already holding patents for generic drugs manufacturing processes. The healthcare market is bound to increase all across the globe. Population is aging faster in western countries and at the same time the healthcare costs are increasing exponentially in those countries. Drugs should be affordable to cater to this market. Big global pharmaceutical companies will try to establish plants or get into joint venture agreement to manufacture generic medicines with Indian companies. Pfizer recently entered into Joint venture agreement with Wockhardt. Mylan Pharmaceuticals, the world’s 3rd largest generics drug manufacturer entered into agreement with Biocon. India has huge revenue growth potential in this business. Big pharmaceuticals have drugs whose patents are expiring in a few years. Establishing plants or collaborating with Indian companies will aid them in making revenue from these patent-expired drugs at a minimum cost.
4. FOCUS ON EXPLORING BIOFUELS: Indian government is spending on Jatropha research to exploit it as an alternative source of feedstock for ethanol. Jatropha is a toxic plant which grows in marginal lands in India and whose oil can be processed to bio-ethanol. Unlike other oils like corn oil, soybean oil, etc, the oil from Jatropha plant is not edible. So this will not compete with the edible oils’ resources. India right now is spending a huge amount on importing crude oil from Gulf countries. Exploring on Jatropha has benefits such as making India a front-runner in the world in biofuels, reducing costs on importing oil, realizing huge export and revenue opportunities & so on. Challenges do exist in this study but this should not lead to stepping back from this effort. So far about 500,000 to 600,000 hectare of land have been used to grow Jatropha. Government right now to encourage Jatropha research has increased import tariffs to 28% for vegetable oils, a feedstock for manufacturing bioethanol (not sure if this would work as it is again trying to protect this industry). Incentive programs need to be put in place to encourage farmers to grow Jatropha.
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