Ease of Doing Business

On the face of various fierce industrial challenges, ease of doing business in India is a very contentious and pertinent issue for almost all the industries, though the extent varies context-wise. And, so is true for Chemical Industry as well. Is it easy to do business in India? Or is it a pain? How competitive India is as a country or as a territory for this purpose? Many giants as well as small-and-mid scale business houses are already in the league and deriving benefits; however, does that mean - it is easy? It does not mean they have achieved all what they wanted to. This article is based on the CEO Roundtable discussion that took place during the Specialty Chemicals 2019 Conference held during Chemtech World Expo 2019 in Mumbai. Mr. Adnan Ahmad - Vice Chairman and Managing Director of Clariant Chemicals (India) Ltd & Technical Chairman, Specialty Chemicals World Expo 2019 chaired the panel of CEOs which included Mr. Rajendra Gogri, Chairman & Managing Director, Aarti Industries Limited; Mr. Suyog Kotecha, Partner, McKinsey & Company; and Mr. Meghav Mehta, General Manager Strategy, Deepak Phenolics Limited.

(LtoR): Mr. Rajendra Gogri; Mr. Adnan Ahmad; Mr. Meghav Mehta, & Mr. Suyog Kotecha during the CEO Roundtable

Is India a land of opportunities for the Chemical Industry, specifically for the Specialty Chemical Industry?
From the opportunity landscape point of view, Chemical Industry holds a leading position amongst almost all the industries. A graphical plot of almost all the public limited companies against the return their stake -holders have been receiving since last sixteen years, translates into this industry's value creating ability in comparison to their feedstock-supplier -industry or consumer-industry. In global context, this industry is going through certain consolidation and restructuring - mostly into the US and Western Europe.

For Indian Specialty Chemical industry, it is a golden period. Tracing back to the history, - in the pre-easternization period before 1990, US, Europe, and Japan held the major share of manufacturing activities globally, while China and India used to derive the benefits of being chemical engineering manufacturing hubs in Asia as the region had adequate ecosystem and landscape to facilitate these activities.

Between China and India, initially China captured the cost-advantage due to the depreciation of Indian currency against the Chinese. However, the stringent environmental regulations in China soon took away their strategically beneficial position and put India in the spotlight as the lower-cost destination with the added advantage of huge pool of customers who are willing to buy from India.

As far as the Indian scale of economy is concerned, a trillion dollar is getting added in every three to four years, but conversely, India's growth rate is lesser compared to industry growth rate. Therefore, the most pertinent question to ponder over is, what does India need to do to take part in this growth? India is recognized as one of the low cost destinations for manufacturing globally because of availability of skilled labor, and infrastructure. Gradually the country is also evolving as the research hub for global companies to bring innovative products in the market.

Challenges & Solutions:
  • Infrastructure and Power: Though India aspires to be one of the 3rd largest global manufacturers for chemicals, the country does not have sufficient chemical ports. Chemical transportation from land locked facilities is another challenge for the manufacturers that can be met through development of inland waterways. The Indian government has an expansive plan to develop the water infrastructure which will eventually benefit the chemical industry. Scarcity of power clubbed with relatively high cost is another challenge that the manufacturers continue to face. The state governments have taken cognizance from the challenges and are taking progressive steps to address these challenges. State of Odisha is one such example which is encouraging the development of downstream chemical industry in the PCPIR region with the feedstock availability from IOCL refinery, port infrastructure, and low cost power.
  • Safety-Health-and-Environment vis-a-vis R & D involvement: Safetyhealth-and-environment is the burning issue which needs to be on high priority list for the industry to mandate practicing safety norms proactively and more responsibly. Without the implementation of safe practices, chemical industry will have a very short lifespan. Unlike yesteryears, now with the availability of technology, the organizations can address multiple safety-and -environment related problems provided they have the willingness to implement such practices. Research and development initiatives too can bring in innovative safety improvements.

    Unlike base chemicals, specialty chemicals thrive on user -specificcustomization. And in line with this, the very fundamental requirement to consider, to get a competitive edge, is the investment strategy in research and development. While 'Make in India' initiative does provide thrust to the manufacturing potential, there should be a strong push to address the environmental issues at the same time. One of the steps that can be taken by the regulatory agencies is to make the environment norms product agnostic and to do that one must understand the nature, quality, and volume of effluent coming out of the production facility. From the ecological perspective, the fundamental requirement for any manufacturer should be to ensure that the pollution load does not increase with the change in product mix and zero discharge norms should be implemented wherever possible.
  • Progress speed vis-a-vis resource compatibility: As a starting note, here the mentioned resources are not limited to physical resources only. Now coming back to the point, a very tough challenge is being posed by the likelihood of industry's moving faster in comparison to the accommodating capacity of available resources. Digitalization has made the industry to drive faster. However, academia is falling short to keep up with that pace in terms of advancing themselves. Both industry and academia need to be at par.
  • The Academia - Industry Coalition:A symbiotic bond needs to be established between academia and industry for planning and execution of necessary research and development initiatives. These initiatives will be far-reaching to address the safetyhealth- and -environment issues innovatively, instead of being merely limited to product novelty. However, the major roadblock here is the gap between academia and industry. And to address it, the first factorial is to understand why there is a problem and to empathize with each other. Post that, the next step would be: how the old can be phased out, and the new can be phased in. Once this clarity sets in, execution would be easy and speedy. Pragmatic thinking and fast acting would help to solve this problem.
  • Cost of Doing Business: In specialty chemical industry, the cost of doing business is at the higher side due to the prevailing rules and regulations that the companies need to follow. However, thanks to the dynamism of the industry, things - which were not possible some years ago are likely to happen going forward. Consumption will happen irrespective of the capacity and will pose a delinquency; and, the solution will be achieved by answering the seemingly simple yet tricky question - who will supply for the consumption. Tighter regulations will bring all the suppliers on the same page and create more transparency in the business.
  • Regulatory Compliance: Regulationand-compliance is a belligerent issue that heavily depends on the interaction with the Government. A healthy association between industry and the government is the precursor to make-and-maintain the compliance processes effective, lean, and of shorter duration. Right from the stage of pre-construction to construction and then operations, compliance procedures exist and vary in the range of clearances that are related to environmental issues , effluent control, transportation & storage and other specs depending on the complexity of the business. Though there has definitely been a visible improvement over past ten years, 'Make in India' branding initiative has made this a talking point with the regulatory bodies for speedy execution of processes. The present days' Indian chemical industry is much safer with newer design, which has become the new benchmark and the new standard. The norms have become much more stringent; businesses, which could not acquire the necessary permission before are able to avail those now. Various industry associations have taken the progressive stance and are interfacing with the government to bridge the gap between the industry and the government which has enabled many small-and-medium scale businesses.
Recommendations by the panel:
The panel proposed that the industry associations should collaborate to work upon the industry-expectations from the Government. With an aim to put forward a proposition to the government, the collaborative body may concentrate on: (i) existing regulations vis-a-vis the current situation-and -requirement, and (ii) existing process vis-a-vis the recommended process. Going forward, this can become a 'Bible' irrespective of whosoever comes to rule the country's political front. It would be a good move from haphazard decision making to outcome oriented decision making. Moreover, this will speed up the execution process, thus yielding faster result.

'Ease of doing business in India' is a key performance indicator for the government. It is directly linked with their 'Make-in-India' initiative for bringing the new business opportunities in the country. Government can showcase their good deed in the constituency to attract necessary investment opportunities, and thus can brand this initiative. Similarly, from the industrial point of view, the 'Ease-of-Doing-Businessin-India' is a major industrial growth deciding factor. Therefore, the idea of improving this ease of doing business in India cannot be subjective; it has to be objective and to be in a matrix. The industry, the individual players of the industry, the government, and all the related stake-holders are to be mutually aligned to make it happen.