COVID-19: Roadmap for Indian chemical industry
"Dependence on automation in warehousing and manufacturing is likely to increase and global MNCs will relook at current supply chain dependency on China, may diversify their sourcing benefiting Indian chemical industry.
Today, the whole world is battling with COVID-19 pandemic which possibly is the worst health crisis to hit us in modern times. Along with the unprecedented human toll, COVID-19 has triggered an economic crisis as well. Since no cure is still on the horizon, social distancing so far has been the only proven measure to contain this dreaded disease. However, this is having a significant impact not only on global health but also on the global economy.
To curb the spread, the majority of the countries, including India, have had to enforce complete lockdown resulting in the economic activity coming to complete halt, albeit, for the larger good.
India started its fight with a nationwide stringent lockdown and rightfully so because India with its very high population density especially in the cities and fragile health infrastructure is more susceptible to spinning this virus out of control.
Given the situation, global recession seems inevitable, possibly in emerging economies too. The challenge the emerging economies face is the higher risks associated with the impact of lockdown on their economy as they may not have the financial muscle and fiscal flexibility to support the stimulus required to support the lockdown.
The Indian government faces a twin challenge of restarting the economy and fighting the spread of COVID-19 at the same time. We will need to think about opening the lockdown in a staggered manner to bring back the large drop in demand. Loss of jobs is the most direct and painful consequence.
It is however important to note and realize, that opening of lockdown will not revive the economy/demand to the effect required. Sectors such as travel and tourism, hospitality and sectors associated with discretionary spending such as durables may take time to revive given the potential impact COVID-19 is having on the ways corporates are looking at doing business and economic impact on household income.
The sector probably to be most watched for will be the automotive sector. It has been dealing with severe slowdown since past one year and hasn’t been able to revive so far. Revival of the auto industry is imperative given its link to many industries in its value chain including large parts of the chemical industry.
For the Indian chemical industry, although manufacturing has been allowed in certain essential sectors such as pharma and associated industries, the industry has been facing challenges such as non-availability of labor at plant sites, handling/loading of products and non-availability of transport.
A clear and well thought road map is the need of the hour.
Even if we get past this pandemic by Q2 2020, given the above situation, the effect on the economy would potentially last for further three-six months as supply chain challenges will persist in the near term.
One thing is sure, the global economic impact caused by COVID-19 pandemic is expected to structurally alter the approach of governments, organizations and industry.
It is already changing how we operate. Significant part of the global workforce is working from home, utilizing digital means to interact. This is expected to continue, becoming a trend. Dependence on automation in warehousing and manufacturing is likely to increase and global MNCs will relook at current supply chain dependency on China, may diversify their sourcing benefiting Indian chemical industry. Developed nations are also expected to consider alternate sourcing of key medical equipment and pharma products.
A clear and well thought road map is the need of the hour. Government should support the financial system to avoid the health crisis becoming a deep financial crisis. Laying off people should be the last resort for the industry.
Indian chemical industry also needs to look for solutions to make itself cost competitive, expand into value added products. If done right, India could benefit as a manufacturing hub in the mid-term. We have to increase the speed of reforms implementation and consider the chemical industry as an integral part of India's industrial ecosystem. However, implementing additional import taxes or additional duties will be very counterproductive.
This will make essential and specialty raw materials expensive for downstream industries who already are suffering because of the supply chain disruption and lack of demand.
COVID-19 outbreak should not be used as an exemption to impede imports. This could be a departure from India’s WTO obligations.
To build this momentum of building a robust healthcare system in the country to face such problems in future, industry is also actively supporting and stepping up to the needs.
Chemical industry leaders need to collaborate, jointly invest in chemical parks, so that key raw materials are available for local companies/MNCs/SMEs etc., this would enable entire chemical/specialty value chains to be created. Economics of scale will result in reduction of costs for logistics, common utilities will make Indian chemical players competitive. India being a very large domestic market, would also cushion the Indian chemical industry in future global demand shocks.
In the medium term, the government can also incentivize the chemical companies, both local and MNCs present in India through their Make-in-India manufacturing policy and conducive business environment.
The chemical industry will overcome the current health and economic crisis with some scars, but with some learnings and positives. One thing for sure, industry will refer to pre-COVID & post-COVID era. It is important that we use this crisis as an opportunity. We believe that the Indian chemical industry has the prerequisites to emerge stronger in the medium-term.
Author: Sanjeev Taneja, President and Managing Director, Evonik, India Region
DISCLAIMER: The views expressed are solely of the author and Indian Chemical News does not necessarily subscribe to it.