‘Lack of standards curbing specialty chemical demand’

The specialty chemical industry is one of the few bright spots in the beleaguered chemical industry.

Speciality chemicals are sold for their performance enhancing properties (and are used in paints, shaving foams, construction materials, textiles and so on) rather than their basic chemical composition. According to a CII study, this segment is expected to grow from $20 billion to $80 billion over the next decade.

In an interview with Business Line on the sidelines of a CII seminar on specialty chemicals industry, Nadir Godrej, Managing Director, Godrej Industries, shared his thoughts on the challenges and prospects of this industry.

What are the challenges faced by the specialty chemicals industry?

The availability of key feed stocks (raw materials) essential to manufacture specialty chemicals is the main challenge. Some feed stocks that are currently imported if made available in India at a lower cost, can give the industry a competitive edge. Availability of Ethylene Oxide (EO) used by many specialty chemical companies is a major challenge. Reliance is the only big producer which sells it. But ethylene oxide cannot be imported. It cannot even be safely transported as it is hazardous and explosive. Unfortunately new refineries (that produce EO) are coming up in far-flung places. We have made a representation that EO be made in Panipat. But even that is too far for user industries located in western India.

The other challenge is that because of lack of standards, there is no demand. Specialty chemicals such as flame retardants and environmentally safe paints are important for a country as they saves lives. Someone has to take a decision on what standards are appropriate for India and mandate those standards so that lives can be saved and the chemical industry can grow.

Differential import duties are another area that the Government needs to look into. There are certain raw materials that have higher import duties than finished products. Then there are issues that affect all industries such as lack of infrastructure; anything that government does to improve that would help. And for us energy is an important cost and energy costs are very high in India.

Many of our industries are in Gujarat and in Gujarat it is possible to do energy trading. That has helped a lot. If other States too permit energy trading, it will help further.

Is high finance cost also hurting companies?

Finance cost hurts some of us. But we can borrow freely in dollars at internationally competitive rates. For larger members, it is not an issue. Companies that can bear the risk such as exporters can easily borrow in dollars at 2.2 to 3 per cent above LIBOR, this is lower that the 10 per cent domestic borrowing cost.

I would prefer to borrow in dollars for the long–term because I know I can export and earn enough dollars to pay back my loans.

How are environmental regulations affecting the sector?

Environmental regulations should be strong and should be enforced speedily. We cannot tolerate delays because of environmental issues. Environmental regulations that are quick are good for the country. But they should not hold up projects. It should either be a ‘No’ or a ‘Yes’.

What is the growth rate for the industry likely to be?

The economy can improve next year as the monsoons will give a boost and the rupee has already stabilised. If the Government can keep the rupee stable even if it remains at the current rate, it will be useful to business.

The chemical industry is expected grow at the same rate as the GDP. If energy costs improve, margins will be better and exports can then improve.

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