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"A wave of innovation will drive growth in the future"
The specialty chemicals industry, which is not so dependent on oil & gas for feedstock, can be a major driver for the growth of Indian chemical industry. In an exclusive interaction with Chemical Engineering World, Nadir Godrej, Managing Director, Godrej Industries Ltd, talks about the dire need to address the issues ailing the Indian chemical industry ; the competition that USA is going to pose in the next few years to the global chemical industry with the availability of cheap gas in that country and more...

May we have your comments on the global trends that are driving the growth of the chemical industry?
Energy prices - I would say are the most critical driver for the growth of the chemical industry and as fossil fuels are also the main feedstock it impacts the chemical industry doubly. We see a very peculiar price trend in the oil to natural gas ratio which was almost 5:1 before the recent fall in oil prices. Natural gas is an important feedstock for the chemical & petrochemical industry and is cheaper in the US as compared to the rest of the world. Crude oil prices, on the other hand, have been almost the same all over the world although the premium of Brent over WTI crude oil prices has fluctuated quite a lot recently. But the very cheap gas in the country makes the US industry very competitive.
Moving eastwards, Middle East has cheaper gas availability. However, they probably have higher capital costs and operating costs than the US. The availability of cheaper feedstock in US is the biggest advantage for the local chemical industry, and if the rest of world wishes to compete with them, they need to focus on low cost feedstock availability.

What are the top priorities of the CEOs from the global chemical industry to drive the growth?
Being cost competitive is the biggest concern for the CEO’s of the chemical manufacturers. My view is that for major chemical companies the priority would be investing in the USA to take advantage of the cheap feedstock whereas for smaller chemical companies, it is about getting cheaper energy and feedstock to stay cost competent. Some of the companies may also look at investing into specialties where the energy and feedstock cost difference is not so important.
The natural gas prices in India are very high as compared to the USA which is a very big concern for the Indian chemical manufacturers. We, being in the oleochemicals business use natural gas only as an energy sources and to cope with the current situation of high prices, have started considering biomass as an energy source. We have started trading electricity which has helped us mitigate the cost to a reasonable extent. Proximity to the market makes Gujarat a very strategic location for us and enables us in being cost competitive.

Please tell us about the key future growth and focus areas of research of Godrej Industries.
Innovation has always been at the forefront in the growth strategy of our organisation and we always had a strong R&D division to ensure development of a wide range of high quality products. Today, we are more focused on specialty chemicals and are further enhancing our strengths in the basic oleochemicals. The demand for Erucic acid has seen a significant rise in the past five – six years and we have expanded our production taking advantage of the fact that India is now the lowest cost source of High Erucic Rapeseed Oil. We are now looking to produce high quality Oleic Acid.
We plan to gradually increase the percentage of specialty chemicals in our mix as these have higher margins and are not so sensitive to raw materials costs. I believe the speciality chemical industry is well suited for our country and could drive the growth of the Indian chemical industry. Thanks to the availability of good scientists and engineers for both production and R&D. Apart from innovation in our oleochemicals business, we do lot of innovation in Godrej Agrovet. We developed generic versions of patented herbicides which were going off patent and this has given a major boost to our agrochemicals business. Besides, we are also strong in growth promoters and we have successfully synthesised homobrassinolide in association with the National Chemical Laboratory (NCL).
Further, we are also trying to develop new kinds of seeds that will push the Indian oleochemicals business to greater heights. However, there are some challenges. We have successfully got farmers to grow Oil Palm in India. But in Indonesia and Malaysia land is inexpensive, whereas in India the farmers always have an option to grow something else on the land.

What is the growth Godrej Industries is targeting at for future?
We expect to grow at 20 to 25% per year - slightly slower than the rest of the group. We see this growth coming in terms of new investments in technological collaborations and new products developments.

Innovation has not been a forte in India though India has a history of producing world class scientists. How can we bring the culture of innovation in the Indian chemical industry?
India boasts of talented scientists and chemical engineers and it can play a vital role in research and development for chemical or specialty chemical companies. All CEOs must focus on innovation as that is the wave that will drive the growth in future. This is good time to invest in R&D since our government has given attractive incentives for R&D and is announcing investment credit for the next two years.
Moreover, there are centres of excellence all over India and partnering with these institutes is a great idea to pursue research with the available resources and infrastructure that already exists within these entities rather than only innovating in-house.

'Responsible Care' is the latest buzz around the world. May we have your comments on the need to promote green chemistry within the country?
There is a strong notion that natural is good and anything synthetic is harmful which in my view is not at all true as venom and botulism are natural but can be extremely dangerous for human beings. Chemistry is the core of every scientific development and stands centrally between physics and biology thus giving chemists a very good understanding of both these aspects. One must understand that it is innovation in chemical technology, that has enabled us to live much longer and bio and nano technologies which have provided us with advanced materials thus making our lives much better.
In order to ensure safety for all the stakeholders of the environment, responsible care is of paramount importance and industry must adhere to safe and sustainable practices, which would eventually enable the chemical industry to deal with the prevalent negative image.

What are the other growth areas where Indian industry can make significant impact?
Palm oil refining is another area where India has an advantage since India is low cost destination. Now that, Palm Stearine and PAFD are available in India at more economical price, we needs to help the refining industry by having higher import duty on Olein than on palm oil to ensure that fractionation happens in India. Stearine, which is the by-product of fractionation, is very useful for the soap and oleochemicals industry. Malaysia and Indonesia have tried protecting their industries by imposing a high export duty on palm oil and India has already countered that by putting higher duty on Olein than on crude palm oil. Currently the import duty on crude palm oil is 2.5 per cent and on Olein it is 7.5 per cent - but this 5 per cent differential is too little and should be increased to 10 per cent.

What are the challenges that Indian chemical industry needs to address?
We have not performed well in the development of shale gas. But as a follower we can catch up fast and later leap frog in the field of shale gas. The Government of India is also very keen to develop this field and with an effective policy that allows private players to actively engage in this sector, we can surely attain remarkable success in the next five years. The technology is available and America has already done well in shale gas exploration. We can look forward for technological collaboration to develop the shale gas resources in the country. The other area, where we should focus on is the development of chemical clusters in the country where companies can have access to feedstock and enjoy some tax benefits as well.

Your message to the industry.
Explore more oil and gas reserves. Focus on energy cost. Invest in R&D. If we do all of these we will surely have a bright future.