By John Richardson
THE blog has recently heard India described as “very disappointing” by several overseas executives of major polyolefins producers.
When pressed about what they meant, they told us:
- Economic growth over the last few years has been much weaker than expected.
- This has been the result of infrastructure constraints and lack of foreign investment. They worry that India has hit an economic speed limit. This might not change even after the expected election of Narendra Modi as Prime Minister in the April-May General Elections. Modi is viewed as business friendly, but he may struggle to change a failed political system.
- The much-vaunted “rise of the Indian middle class” was an erroneous catch-all label, handy for financial-market investors seeking short-term gains. However, it hid the fact that India will remain a colossally price sensitive market.
- The reason is that, by Western standards, the vast majority of people in India are a million miles from being middle class. The slide above, from a presentation by Puneet Madan, Senior Vice President, Supply Chain Management (Polymers) at Reliance Industries, neatly illustrates this point. As you can see, in 2010, average household income was just $6,393. Only 4% of households earned more than $37,000.
But the opportunities in India are enormous, as Puneet, in his presentation at last week’s 3rd ICIS World Polyolefins Conference in Amsterdam, also pointed out.
These include surging demand for food and water as India becomes the world’s most populous country by 2025, as the second slide above illustrates.
Vital to meeting this challenge will be raising the productivity of India’s land, which, according to Puneet, is only around 50% of the global average. Key to boosting productivity will be “drip irrigation systems” that more effectively distribute water. Polyethylene (PE) pipes are used in these systems.
And the “stand-up milk pouch” story further illustrates how the Indian success story will not be about tens of millions of Indians owning BMWs for the first time, but will instead be about meeting basic needs.
Only around 25% of milk is currently packaged in India, added Puneet, as the majority of milk is delivered to people’s homes via truck and is then stored “loose” in jars or pots. The milk is sometimes, also, unpasteurised.
In the blog’s home country, the UK, this was the case before the Second World War.
But then distribution via glass milk bottles took over, which were delivered to people’s homes. This was followed by a switch to milk being sold in cartons in supermarkets.
In India, though, there will be no transition via milk bottles. Instead, people will go straight from buying their milk “loose” to buying it in the stand-up pouches we mentioned above, which are sold in shops.
These pouches are made from outer layers of biaxially-oriented polypropylene (PP) or polyethylene terephthalate (PET) and inner layers of linear low-density PE/low-density PE (LLDPE/LDPE).
Clearly, the demand-growth potential is enormous.
But do overseas polyolefins companies always have the right mind-set to succeed in India?