India Chemicals Blog

Is India being too hasty in introducing mandatory ethanol blending? The government is on the verge of announcing a policy of 10% blending with petrol from October 2008.

Those in favour point out that introducing ethanol to the fuel mix will cut India’s dependence on imported oil and contribute to energy security.

The move will keep the agricultural lobby happy as sugarcane farmers and sugar companies are suffering as a result of oversupply this year.

However, the experiences of other countries suggest that India needs to do some careful thinking. A big concern is whether there will be enough local ethanol supply. There are doubts on whether ethanol will turn out to be environmentally friendly as growing sugar cane, to produce ethanol, involves cultivation of vast tracts of land plus water, labour and fuel.

Some economists also question if India should look at importing ethanol rather than producing it locally.

For more on the world of ethanol and biofuels turn to Simon Robinson's The Big Biofeuls Blog.

Ever since the sub-prime crisis broke out in the US, questions have been raised on whether India can safely ride out the storm.

We have already seen the impact on the stock market and it is hard to imagine that India escaping unscathed if the crisis deepens.

However, some economists believe that the impact will be marginal chiefly because of India’s low reliance on exports and weaker linkages to the global economy when compared with other Asian countries such as Malaysia, South Korea and China.

Goldman Sachs estimates that a 1% drop in US GDP growth would shave off only 0.25% India’s growth.

At the other end of the spectrum, Morgan Stanley’s Chetan Ahya says the rise in global risk appetite had contributed to India’s growth. But if investors remain risk averse in the coming year, it would hurt India’s growth story by reducing the country’s access to risk capital and by increasing funding costs.

After enjoying the rewards of the Indian and global growth story, it is probably time to start worrying about the pain that an economic downturn will unleash.

India these days is not too slow to catch up with the rest of the world. The toy recall by US-based Mattel has prompted a Mumbai-based Consumer Welfare Association to file a public interest litigation asking for the ban on the manufacture, import and sale of all kinds of toxic toys.
The petitioner has also asked for a study to assess the levels of harmful chemicals in all toys sold in the market – those imported from China and those made locally. China accounts for 50% of the country demand.

While the petitioner should be commended on acting fast to protect consumer interests, I wonder if India has the required infrastructure to monitor contamination. And does it have the laws and the will to track and punish offenders?

China's problems with quality and chemical contamination are not new but rising global awareness could prompt companies to look at alternative sources of supply. India appears to be well placed to fill the gap. But doubts persist.

I asked a plastics converter last week if China’s quality problems represent an opportunity for Indian manufacturers to expand their presence in the global market. He was honest enough to admit that barring a few exceptions, Indian quality standards in the plastics sector are probably lower than that of China!

A few days back I had referred to China’s quality-related problems and whether this would turn out to be an opportunity for Indian exporters.

I believed at that time that it would take a few more months for the opportunity to emerge and that Indian manufacturers would have to work hard to be recognised as suppliers of quality products.

But according to this report in today’s Economic Times, global toy manufacturers and retailers have already started placing big orders in India.

Last week, Hanung Toys bagged a $150m order from Ikea and the company’s chairman and managing director is quoted as saying that there is a growing realisation in the West that Indian companies do not compromise on quality.

Do you agree?

India, I thought, had done a lot to curb industrial production and clean up its environment. I was also quite sure that the country was miles ahead of China in this area. So I was quite surprised to find that the Blacksmith Institute’s latest report on the world’s most polluted places includes two Indian cities – Vapi and Sukinda.

The list also has two cities from China and two from Russia.

I was, of course, not surprised that Vapi has been selected among the various Indian cities. The city is on Gujarat's "Golden Corridor", a 400 km belt of industrial estates, which according to the Institute has over 50 industrial estates and more than 1000 individual industries. Many of these manufacture chemicals, petrochemicals, pharmaceuticals, pesticides, dyes, fertilisers and paints.

The Institute identifies heavy metals, cyanides, pesticides complex aromatic compounds as some of the toxins contained in the waste products discharged by industries in this region.

Mercury in Vapi’s groundwater is reported to be 96 times higher than WHO
health standards. And the Institute states that effluents drain directly into the Damanganga and Kolak Rivers and there is air pollution due to the improper handling of chemicals by industries.

Vapi’s problems date back to the 1990s when the Supreme Court had stepped in to demand a clean up. It is sad to see that so little has changed after so many years.

And it is problems at places such as Vapi that tarnish the image of the chemical industry in the eyes of the common man.

The Indian government has done well to introduce western style laws related to environmental protection. But what’s the use of these laws if the government fails in implementation.

India’s organised retail business has a long way to go before it catches up with the rest of the world. There is a lot of interest in this sector these days with all the big Indian companies, including Reliance Industries, lining up to grab a share of the retail pie.

So how big is the opportunity? I heard at a retail seminar last week that the share of modern self service outlets is only about 8% in big cities of India, way behind the average 49% for Asia.

Indian households spend about 40% of their income on food and personal care. The corresponding figure for the US and UK is 15%. A lower figure is better for retailers as it shows that households have the money to spend on other consumer products.

India has three modern stores per million people while Japan has the highest concentration of 692/million.

India has about 6.4m traditional grocery stories and only about 3,400 supermarkets. China already has over 60,000 modern retail outlets and traditional grocery stores account for about 68% of total trade.

In its quest for value addition, Saudi Arabia is aggressively marketing itself as an investment destination for the plastics industry. And processors from India are being wooed to set up shop in the Kingdom.

A delegation of Indian processors, just back from a visit, appeared impressed at what was on offer. The opportunities were discussed at a briefing organised by the Organisation of Plastic Processors of India (OPPI) earlier this week.

Plastics consumption in the Kingdom is currently about 1m tonnes/year as against production of around 7m tonnes/year. With polymer output set to spiral after the commissioning of new cracker complexes, raw material availability will not be an issue.

Will Venezuela turn out to be the next Iran in the world of petrochemicals?

Speaking on his weekly radio and TV show, Hugo Chavez, Venezuela’s president, announced the country’s intention to become a global petrochemicals superpower. The aim is for Venezuela to achieve petrochemical revenues of $100bn/year from the current $1.7bn. By 2013, the country would invest about $20bn in the industry and create 700,000 jobs – about 10 times the number of workers in its oil industry. And by then there would be 70 companies producing petrochemicals.

The plan is said to be divided into two phases – the first up to 2014 and the second till 2021 by when Venezuela would have nine complexes in operation. President Chavez also said that the states of Zulia, Falcon, Carabobo, Anzoategui, Tachira, Barinas and Apure will form seven petrochemical poles in the development of a national network of petrochemical socialist companies.

This report on Vheadline.com argues that the move is natural and logical given the natural gas available in the country.

“For years, the industry looked on agog, asking why Venezuela apparently couldn't see the blindingly obvious…decades went by while natural gas went virtually undeveloped -- or wastefully flared at well-head to boost oil output rates.”

I doubt if Iranian companies are going rush to the region anytime soon. After all they have to set their own houses in order and finish their numerous projects.

It is difficult to take either Venezuela or Bolivia seriously. Yes, they have the feedstock but the geopolitical risk far outweighs that advantage. Indian companies worried about competition can rest easy

The West Bengal government’s determination to construct a chemical hub is commendable. The government had initially set its heart on Nandigram but after widespread resistance and violence over land acquisition (see my blog entry in March), many had believed that plans for a hub in the state had been shelved.

However, much to my surprise, the state government cabinet recently approved an alternative site –Nayachar island, near Haldia which is already home to a refinery and petrochemicals complex.

Nayachar appears to be an excellent choice as it carries no political risk. The 11,000 acre island belongs to the government and the only residents likely to be displaced are about 2500 poor fishermen who are in any case illegal residents. Government files classify the island as uninhabited.

The fishermen have welcomed the government’s plan. This report quotes one.

“We know we are living on government land. We have to move out whenever they tell us. But we hope the government will provide jobs to our sons in the factories that come up.”

That should surely be music to ears of the West Bengal chief minister. However, I suspect the going will not be easy. Nayachar is a coastal island and environmentalists are protesting. The opposition party has already named the project a ‘killing hub’ and warned of severe environmental pollution.