GPTIE ASSIGNMENT-

SECTOR REPORT :

CHEMICALS

Submitted to: Submitted by:

Ms. Alka Maurya Piyush Rawtani B48

Bhumika Sharma B17

Nishant Joshi B44

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 AMITY INTERNATIONAL BUSINESS SCHOOL,NOIDA

CHEMICAL INDUSTRY

The chemical industry comprises the companies that produce industrial chemicals. It is central
to modern world economy, converting raw materials (oil, natural gas, air, water, metals,
minerals) into more than 70,000 different products.

The chemical industry is a key contributor to the world economy. It is a knowledge-based

industry with significant investments in R&D. The industry supplies to virtually all sectors of
the economy and produces more than 70,000 products. In terms of consumption, the chemical
industry is its own largest customer and accounts for approximately 33 per cent of the
consumption. In most cases, Basic chemicals undergo several processing stages to be converted
into downstream chemicals. These in turn are used for industrial applications, agriculture, or
directly for consumer markets. Industrial and agricultural uses of chemicals include auxiliary
materials such as adhesives, unprocessed plastics, dyes and fertilisers, while uses within the
consumer sector include pharmaceuticals, cosmetics, household products, paints, etc. The global
chemical market is estimated at approximately USD 1.7 trillion in 2002 and USD 2.4 trillion in
2007.

Growth in revenues within the chemical industry depends largely on the overall growth of the
economy and industrial production, and is often measured as a multiple of GDP growth.

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GLOBAL SCENARIO

The size of the global chemical industry is estimated at approximately USD 2.4 trillion in 2007.
The industry is currently under-performing due to the recession . Some of the emerging trends
of the global chemical industry that can be leveraged for growth are:

 increasing globalisation as growth in mature markets drives leading players to explore

new developing markets;
 consolidation to leverage economies of scale in the Basic and Knowledge segments;
 increasing focus on core businesses, resulting in diversified chemical and
 multi-product companies divesting businesses or exiting non-core product lines;
 cost optimisation assuming critical importance in the face of slow growth coupled
 with a pressure on prices due to competition;
 increasing investments in R&D (especially in the Speciality and Knowledge segments)
 to gain competitive advantage.

MAJOR CHEMICAL PRODUCTS

The major products included in this sector are:

 Alkali- Soda Ash, Caustic soda, Liquid Chlorine, etc

 Inorganic- Aluminum Fluoride, Calcium Carbide, Carbon Black, Red Phosphorous, etc.
 Organic- Acetic acid, Methanol, Formaldehyde, Citric Acid, Chloro Methane, Ethyl
Acetate, etc.
 Pesticides-Pesticides/Insecticides registered under section 9(3) of the Insecticide Act
1968.

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  Dyes & Dye stuffs- Azo Dyes, Acid Direct Dyes, Basic Dyes, Ingrain Dyes, Oil Soluble
Dyes, Sulphur Dyes, Food Colours and Other Dyes.

CHEMICAL INDUSTRY IN INDIA

 Chemical Industry is an important constituent of the Indian economy having approx. US

$ 28 billion turnover which is approx. 7% of India’s GDP.
 In terms of volume, it is 12th largest in the world, and 3rd largest in Asia
 Within India, it constitutes about 15% of manufacturing capacity and20% of the Excise
revenue to the Government of India.Chemical industry has weightage of about 13% in the
index of industrial production.
 The global chemical industry is valued at about US $ 2.4 trillion. Of which,
India’s chemical sector accounts for just 2%
 India’s present share in Global Trade is 0.6% i.e. USD 45 Billion & it has been expected
to increase the same to 1% i.e. USD 80 Billion by 2011.
 Chemical & Pharmaceutical Industry is the most important Foreign Exchange earner with
major value additions through out the value chain. The value is added using Knowledge,
energy and Capital.
 The Indian Chemical sector accounts for 13-14% of total exports and 8-9% of total
imports of the country.

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SWOT ANALYSIS OF THE INDIAN CHEMICAL INDUSTRY

STRENGTHS

 Diversified Manufacturing Base

 Vibrant downstream industries in different segments
 Competitive core industries
 Capability to produce world-class end products
 Strong presence in the export market in sub-segments
 Large domestic market
 Major raw material component sources within the country
 Good R&D base

WEAKNESSES

 Infrastructure
 Cost Advantages

 Scale of production
Cost Disadvantages - India vs. Other Developing Countries
 Technology
4.5
 Multiplicity
4 of taxes
Percentage of Net Sales

3.5
 Labour 3Laws India
2.5 China
2 Thailand
1.5 Indonesia
1
0.5
0
Power Interest Local Taxes Import Duties 5
Name of the Country
OPPORTUNITIES

 Challenge to compete globally by concentrating on weaknesses

 Markets in the developed countries
 A large number of products going off patent.
 Advantages in certain categories can be used for boosting exports.
 Close to middle-east- cheaper and abundant source for petrochemicals feedstock.
 Stringent environmental laws in the western countries
 Climatic conditions in India
 Competencies to utilize renewable resources
 Competency to emerge as a global player in the area of Specialty chemicals.

THREATS

 Imports of chemicals, intermediates and end products

 Tariff levels for chemicals
 Greater competition due to
 Chinese products
 Bilateral/multilateral trade agreements
 The labor laws, power supply and infrastructure facilities

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MAJOR PRODUCTION CENTERS

• United Phosphorous Ltd, Mumbai

• P.I Industries, Jaipur
• Excel India, Mumbai
• Colour Chem. Ltd., Mumbai
• Sudarshan Chemical Industries, Pune
• Colourtex, Ahmedabad
• Jubilant Organosys Ltd., New Delhi
• Herdilia-Schentady Ltd. Mumbai
• National Organics Chemicals Ltd., Mumbai
• Gujarat Heavy Chemicals Ltd., Ahmedabad.
• India Glycols Ltd., New Delhi
• Gujarat Alkalies and Chemicals Ltd., Baroda
• ICI Calcutta

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MAJOR EXPORTERS IN INDIA

• Indian Petrochemical Corporation Limited (IPCL)

• Gas Authority of India Limited (GAIL)

• Haldia Petrochemicals Limited

• Tata Chemicals

• Asian Paints

• Ciba

• Rallis

• Hindustan Organic Chemicals (HOCL)

• Reliance Industries Limited (RIL)

MAJOR EXPORT DESTINATIONS

• UAE

• United States

• United kingdom

• China

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GLOBAL COMPETITORS

Company Chemical Sales (in Billions) Rank

BASF SE, Germany $53.20 1

Dow Chemical, Midland $46.30 2

Shell Chemicals, UK $35 3

Bayer, Germany $34.10 4

INEOS, UK $33 5

ExxonMobil, Texas $31.20 6

DuPont, Delaware $28.50 7

Mitsubishi Chemicals, Japan $21.90 8

Lyondell Chemicals, Texas $18.60 9

Saudi Basic Industries Corporation,

$18.40 10
Saudi Arabia

SEGMENTS OF THE INDIAN CHEMICAL INDUSTRY

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 speciality & fine chemicals
basic chemicals
knowledge chemicals

17%
26%

57%

The Indian chemical industry is divided into 3 segments which are :

1.Basic Chemicals

2.Speciality and fine chemicals

3.Knowledge chemicals

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Segments Characteristics Constituent Industries

Basic • High Volume • Petrochemicals

• Limited product • Fertilizers

differentiation
• Organic Chemicals

• Other Industrial Chemicals

Specialty • Typically small production • Adhesive sealants

units
• Catalysts
• High product differentiation
• Industrial gases
• Low capital investments
• Plastic additives

Knowledge • Differentiated chemical and • Agrochemicals

biological substances.
• Pharmaceuticals
• High investments in R&D
• Biotechnology
and marketing.

FTP PROVISIONS FOR THE CHEMICAL INDUSTRY

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 Exports and Imports shall be free, except where regulated by FTP or any other law in
force.

 The procedure for facilitating foreign direct investment has been simplified. Most of the
chemical items fall under the RBI automatic approval route for FDI/NRI investment up to
100 per cent.

 Expansion of FMS – Focus Market Scheme (FMS) has been expanded by adding 26 new
markets, out of which 16 are in Latin America and 10 in Asia-Oceania. Incentive under
the scheme has been enhanced from 2.5% to 3%.

 Expansion of FPS – Incentive under the scheme has been enhanced from 1.25% to 2%.

 Duty free import of specialized inputs /chemicals and flavoring oils is allowed to the
extent of 1% of FOB value of preceding financial year’s export.

 Free imports of samples by exporters - Number of free samples allowed is increased

from 15 to 50 as per para 49 of Highlights of Foreign Trade Policy announced on 27-8-
2009. It seems the change will be effective after relevant customs notification is suitably
modified.

 Customs Duty
1.)The peak rate of Customs Duty on most Chemicals is 7.5%
2.)On basic raw materials like sulphur, rock phosphate, natural borates is 5%
3.)On most building blocks & feedstock the duty is 5% (ethylene, propylene, benzene,
toluene, xylene )

 Excise Duty-On almost all chemicals the excise duty is 16%

 EPCG scheme

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 Zero duty EPCG scheme - A ‘zero duty’ EOCG scheme has been introduced in FTP
2009-14 for a limited period i.e. upto 31-3-2011.The scheme is available for exporters of
engineering and electronic products, basic chemicals and pharmaceuticals, apparels and
textiles, plastics, handicrafts, chemicals and allied products and leather and leather
products, except those excluded in HBP Vol. 1.

 Manufacture under Bond -Under the Manufacture under Bond Scheme, all factories
registered to produce their goods for export are exempted from import duty and other
taxes on inputs used to manufacture such goods. Against this the manufacturer is allowed
to import goods without paying any customs duty. The production is made under the
supervision of customs or excise authority.

 Duty exemption and remission schemes-The Government has been taking various steps
for augmenting the export. Some of the important measures taken by the Government are
as follows:-

i) Extension of the Duty Entitlement Pass Book (DEPB) Scheme upto December
31,2009;

ii) Providing pre and post-shipment credit assistance in rupees as well as in dollars;

iii) Reduction in import duties of raw materials; and

iv) Reduction in interest rates on export finance; etc

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QUALITY CONTROL IN CHEMICAL SECTOR

The chemical industry is one of the most regulated activity sectors, where regulation includes
specific quality systems such as good laboratory practice (GLP), good clinical practice (GCP)
and good manufacture practice (GMP). On the other hand, accreditation to these practices covers
technical performance and is not suitable for pharma research and development (R&D) as it is
almost impossible to comply with the requirements of the European standard in the pharma
environment. The challenge is, therefore, to develop quality systems, compatible with various
principles, that not only cover formal quality items, but also ensure good scientific and technical
performance.

Quality Assurance (QA), is the activity of providing evidence needed to establish quality in
work, and that activities that require good quality are being performed effectively all those
planned or systematic actions necessary to provide enough confidence that a product or service
will satisfy the given requirements for quality. QA introduces the rules—'fit for purpose' and 'do
it right the first time'. It can be achieved by introducing appropriate standard operating
procedures (SOPs) in-house.

SOPs

An SOP is a set of instructions having the force of a directive, covering those features of
operations that lend themselves to a definite or standardised procedure without loss of
effectiveness. Every good quality system is based on its SOPs.

The International Conference on Harmonisation (ICH) defines SOPs as 'detailed, written

instructions to achieve uniformity of the performance of a specific function'. SOPs are necessary
for chemical products development-whether it concerns a pharmaceutical company, a contract
research organisation, an investigator site, or any other party involved to achieve maximum
safety and efficiency of the performed clinical research operations. SOPs provide procedural
information about what needs to be completed to fulfil the obligations of the regulations and
provide auditors and regulatory authority inspectors a tool to monitor adherence.

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Inspections and audits

Before any inspection or audit starts, it is customary for the inspector or the auditor to read the
current SOPs for the relevant field. This is to judge the compliance of SOPs, as to how sincerely
they are used by the related personnel, following ICH and other applicable regulatory guidelines.

During inspection the inspectors generally ascertain that appropriate SOPs are available; edition
numbers are correct and all obsolete editions have been withdrawn from circulation; distribution
lists are still correct; SOPs are effective, not leaving parts of the working procedures
uncontrolled; whether the SOP conveys a process that is effective in achieving compliance with
requirements/standards, whether the process that is described in the SOP is an efficient way of
performing the task; can the requirements of the SOP be enforced; and whether the SOP training
records for the staff are in place.

QA paradigms

One of the most widely used paradigms for QA management is the PDCA (Plan-Do-Check-Act)
approach. In order to have the PDCA approach, SOPs may be tailored for--pre-clinical, clinical,
bio-analysis and pharmacokinetics, regulatory affairs, pharmacovigilance/drug safety, project
management, data management, quality assurance including inspections by competent
authorities, external vendor management, crisis management (including product recall), supply
chain management and change control procedures.In a nutshell, all that can be said is 'write
down what you do, do what is written down'.

ISO STANDARDS FOR CHEMICALS

Inorganic chemicals: ISO 1552:1976 & ISO 3425:1975

Organic chemicals: ISO 1995:1981 & ISO 5280:1979

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INDIAN CHEMICAL INDUSTRY : THE ROAD AHEAD

The chemical industry in India has the potential to grow to around USD 100 billion by 2010
according to KPM s analysis based on a survey of the industry. This would imply an annual
growth rate of 15.5 per cent.. At USD 100 billion, the industry s contribution to India s GDP
will grow from the current 6.7 per cent to 12.1 per cent and its share of the global industry will
increase from 1.9 per cent to 3.9 per cent. In order to fulfill this, the industry needs to focus on
new sources of growth like the Speciality and Knowledge segments. At the Base case, if the
current growth rates are maintained, the industry is expected to grow to USD 60 billion by 2010.
In that case, the industry s contribution to India s GDP would increase to 7.1 per cent and its
share of the global industry would increase to 2.3 per cent. The industry would need to seek
new directions in order to achieve the incremental USD 40 billion over the Base case scenario.
This study seeks to discuss the drivers and imperatives for the industry s growth.

RECOMMENDATIONS

• World is becoming increasingly competitive & only the best & the most competitive will
survive. Incentives should be made available to the industry where Larger MNCs start to
have a direct and noticeable effect.

• Even though India enjoys an abundant supply of basic raw materials, it will have to build
upon technical services and marketing capabilities to face global competition and
increase its share of exports.

• As the Indian economy was a protected economy till the early nineties, very little large-
scale R&D was undertaken by the Chemical industry to create intellectual property. The
Industry would, therefore, have to make large investments in R&D to successfully
counter competition from the international chemicals industry.

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ANNEXURE

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STATEWISE SHARE

INPRODUCTIONOF
SELECTED MAJOR CHEMICALS (2006-07)

Import of Selected Chemicals (in ‘000 MT)

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Export of Selected Chemicals (‘000 MT)

EXPORTS FROM INDIA (in US$Billion)

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 Chemical Industry of India (in 2010)

REFERENCES
 Department of chemicals and petrochemicals, Chem Report 2008
 Overview of the chemical industry, KPMG report 2008
 Organic chemicals annual review, Crisil Research, December 2008
 Datamonitor, Chemicals in India, October 2007
 WTO international trade statistics, 2007

Websites

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 www.chemindia.org
 http://commerce.nic.in/trade/national_ftpp.asp?id=3&trade=n
 http://en.wikipedia.org/wiki/Chemical_industry
 explore.oneindia.in/detail/2/chemicals-nic-in.html

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