A $163 billion sector is fighting against a hazardous future
Emerging trends in the chemical industry reveal that it is witnessing a gradual eastward shift – towards Asia. India, undoubtedly, will account for a substantial share of the new market.
In a freewheeling interaction, Satish W Wagh, Ex-Chairman Chemexcil, the industry body mandated to promote exports of chemicals and allied items, sheds light on how and why the sector needs to get serious about environmental impact and the role of the government in accelerating this idea. Edited excerpts:
Economic Times (ET): To what extent are you satisfied with the pace and direction of sustainable manufacturing across India? Do you think the concern is given an adequate push at the policy level?
Satish W Wagh (SWW): The chemical industry is critical for the economic development of any country, including in India, providing key products and enabling technical solutions in virtually all sectors of the economy. Chemicals are a necessity, yet their impact on human health and environmental degradation, associated with their production, use, and disposal is still not much known. The concerns become even more pronounced for developing countries like India, where there is rapid growth in both the quantity and range of new and existing chemicals.
Emerging trends in the global chemical industry reveal that it is witnessing a gradual eastward shift – towards Asia. India, undoubtedly, will account for a substantial share of the new market. In this upcoming scenario, a focus on sustainability would certainly be one of the many expectations from Indian companies. Chemical companies in India have demonstrated a commitment to sustainability and initiated a range of sustainability programs, drawing on best practices adopted by global peers. However, unlike industries such as cement, where sustainability as an agenda has evolved in a broad-based manner among industry players, the chemical companies in India are as yet, at varying stages of the sustainability journey.
However, across India, chemical companies are showcasing their intent. A desk review of the disclosures by leading chemical companies points to sustainability risks and opportunities being mainstreamed in business operations. Increasingly, sustainability is recognized as both as a business driver and a business outcome – and not viewed in isolation.
At present, innovation goals of various companies typically focus on increasing sales from existing products that have become more sustainable or from new products using sustainability as the innovator, based on ‘green chemistry’. This is particularly relevant in the current context when large buyers of chemicals are consciously aiming to incorporate product sustainability in their value chain.
Graphics by Ashmeet Kaur
ET: According to you what are the critical sustainability-related impediments hurting the progress of the chemical sector?
SWW: One of the key issues facing the chemical industry is sustainability. From being an economic and an environmental issue, it has also acquired strong socio-political overtones, which already have a deep impact on the industry, and this impact will only deepen in the coming years. The main issues the industry will have to address actively in the next two decades are related to water, environmental impact, raw materials, and energy use in the Indian chemical industry. Unless the industry, government and technical and research institutes address these proactively and collaboratively, the industry will not grow.
To remain globally competitive and comply with requirements like REACH ( Registration, Evaluation, Authorisation and Restriction of Chemicals - European Union regulation which addresses the production and use of chemical substances, and their potential impacts on both human health and the environment), the Indian chemical industry needs to upgrade its technology to meet world standards and show improved performance in global trade. A number of chemical plants are of smaller capacities and operating at what I call uneconomic scales of production with obsolete technologies. The industry, especially the small and medium enterprises sector, does not have access to capital to upgrade technology on its own.
A summary of the key problems and some potential solutions is as follows:
Water: This is already a scarce resource in all parts of India. Intense competition with human needs makes this a very sensitive social factor, and there is no question that the industry will be the third priority in any allocation. Supply of water for the Indian chemical industry still has not been a subject of sustained or planned effort.
Environment: The levels of pollution of groundwater and air pollution have reached alarming proportions in most of the chemical industry clusters. While there are striking examples of many Indian chemical companies which are in the forefront of environmental, water and safety performance, the non-compliant attitude of many companies and ineffective enforcement efforts in some clusters, have led to large scale damage to the environment.
Energy: The Indian chemical industry is a major consumer of energy. There are a number of plants that are of fragmented capacity across the country, many of which are energy inefficient.
( Satish W Wagh, Ex-Chairman Chemexcil)
ET: What solutions do you propose for the chemical sector, which is largely MSME-dominated?
SWW: Since the chemical sector is dominated by a large number of MSMEs, to turnaround the situation, I propose that the sector can adopt certain sector-specific proposals, these include:
Improving infrastructure: There is an urgent need to build better infrastructure and provide adequate power/ water to support industrial growth of chemicals. At present, nationally, the infrastructure is inadequate for the safe transportation of products as well as proper storage of goods and their exports. An all India chemical cluster/ inter-linkages map could be formed highlighting linkages with roads to pipelines, effluent treatment plants, power, utilities, etc. Further, a database benchmarking energy standards of companies sector wise should be created. The government should publish these benchmarks to facilitate companies work towards achieving better benchmarks, including the methodology and technologies that have been employed in each of these products/ industries for energy efficiency.
The government should make it mandatory that all chemical manufacturing companies with sales revenue above Rs 50 crore, to publish audited energy consumption figures in comparison to the benchmarks. The very requirement of evaluation, comparison, and dissemination will persuade a large number of companies to work towards energy improvement.
Further, the chemical sector needs to secure at least 10% of the total national inclusive innovation fund to invest in ventures/ innovations for the chemical industry. Three dedicated clusters for chemical industry should be created in regions with a large share of chemical industries (e.g. Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh) and similarly, two universities focused on chemical engineering (e.g. ICT, IIT Mumbai) should be shortlisted to develop innovation hubs for the chemical industry.
The industry can also benefit from the pooling of common infrastructure at existing clusters with similar characteristics and complementary requirements. Here, the government could encourage the development of clusters around the large existing plants by extending benefits similar to those provided to Petroleum, Chemicals & Petrochemical Investment Regions (PCPIRs).
ET: What can the government do to encourage MSMEs adopt best practices? Will dishing out incentives for big expenses such as setting up effluent water treatment plant, eventually promote the idea of sustainable manufacturing in chemical sector?
SWW: The government can certainly come out with more incentives for ease of doing business, so that MSMEs are encouraged to adopt best policies and practices which will help them in the long run. In turn, MSMEs can then do value addition to become policy-compliant and not take it as just a cost. Once they do so, it will help them to become more competitive in the future.
The Central Pollution Control Board (CPCB), the State Pollution Control Board (SPCB), and industry need to put in place the right incentives and disincentives to promote environmental protection within the chemical industry. One approach is to institutionalize a program jointly owned and administered by the industry and the Ministry of Environment and Forests (MoEF), to enable voluntary certification of environmentally compliant units.
To encourage adoption of the program, the government should create the right incentives such as a fast track clearance process (e.g: approvals for expansion) for certified units only.