INDIA- one of the fastest growing economies of the world, is all
set to attain the premier status along with China. India is a favoured
destination for overseas investors and offers the advantages of
an open economy, increasing liberalization, a stable democratic
political scenario, highly skilled work force with fluency in English.
Various overseas players wish to explore the Indian market and invest
in opportunities thrown open by the country, projected to be world
number 3 in plastics consumption by 2010. This seems a very achievable
position as since the past decade, the Indian plastics industry
continues to grow at double digit figures. A plethora of queries
plague the investor who wishes to tap the Indian market. Few of
these queries from overseas include :
||The raw material scenario: demand and supply
||Plastics machinery sector : present technology levels and demand
||Finished products : Export potential
||The major overseas players with base in India
||Current consumption, projected growth of the Indian plastics industry
Role of the Indian Government in promoting :
||The Indian plastics industry in general.
The Indian plastics industry functions with its unique market dynamics,
of which, www.plastemart.com has been a successful part. www.plastemart.com
has attempted to address these queries in "Synopsis of the
Indian Plastics Industry : 1992-2010" ; the past 18 years and
what the future holds for the overseas investors.
After liberalization of the economy in 1992, the Government of
India has been quite supportive of industry in general, taking many
steps over the years for the conducive growth of business. These
measures favouring economic growth, are being continuously taken
by the Indian Government, irrespective of the change in power. The
Government of India is endeavouring to achieve GDP growth of more
than 7% in the next 10 years. It is quite possible that plastics
could grow at 14%, based on historical performance.
The Petrochemical Department of the Government of India is in the
process of setting up a development council to promote the development
of downstream sectors in India. This clearly illustrates that the
Government of India is quite positive and supportive to new investments
in India. In fact, many foreign entrepreneurs have been able to
set up 100% owned companies in India in the plastics processing
and machinery industry sectors. Foreign equity participation in
the petrochemical industry has been increased to a 51% stake (a
majority stake). However, the polymer manufacturers and other downstream
industries are free to set up projects 100% on their own equity.
Some examples of the international companies that have set up projects
in India on their own are:
||Multibase- Dow Corning
||Delphi (Automotive parts)
||Huhtamaki (Plastic film converter)
||Visteon (Automotive parts)
The above list is only indicative and not comprehensive. Some of
these initially started as joint ventures but later, when the Government
of India granted permission, they acquired remaining equity stake
from the Indian partners. Additionally, quite a many joint ventures
have been formed in India. Some notable joint ventures are: MachinoBasell
(compounding), Mamta Brampton (Machinery).
The Indian plastics industry, with more than 4 million tons consumption
in 2003 is well spread all over India. While it is estimated to
be fragmented across more than 20,000 processors, the large processors
are less than 100. These 100 have about 35% share of the plastics
processing industry. The major sectors in which large processors
are present are:
||PVC pipes - the largest producer is Finolex Industries with capacity
of 60,000 MT/year.
||BOPP film - the largest producer is Cosmo Films with the capacity
reaching almost 60,000 MT in 2004.
||BOPET film - the largest producer is Polyplex with the capacity
of 80,000 MT out of which 40,000 MT is constructed
||Wire & Cable - the largest producer is Finolex Cable with
estimated consumption of PVC at 35000 MT/Year
and PE at about 5,000 MT/year.
||PE/PP raffia (film fiber) generally has larger processors with
average capacity of about 10,000 MT/year. Some
notable processors are: Jai Corp & Big Bag.
||Cast PP film sector has about 7 processors with the total capacity
of about 35,000 MT/year
||PP spun fiber has about 10 processors with the total capacity
of about 50,000 MT/year
||Calendered PVC film segment is spread among 20 processors with
the total capacity of about 150,000 MT/year.
||Plastiblends India is the largest masterbatch manufacturer with
the capacity of about 20,000 MT/year
However the most diversified processor, Supreme Industries is expected
to process about 100,000 MT/Year in 2004. Supreme Industries processes
in various sectors including PVC pipes, PE film, PVC film, PP furniture
Moser Baer is the largest processor of CD, DVD etc and consumes
about 25,000 MT/year of polymers.
The historical growth of the plastics industry over the last few
decades is at an impressive 12-14%, which is twice the GDP growth.
The major driver of this growth is the increased standard of living
of people in India (housing the second largest population in the
world). It is estimated that almost 35% of the 1 billion population
has a purchasing power equivalent to that in European countries.
The GDP in 2004 is expected to reach a level of about US$ 3 trillion
at the Purchase Power Parity. The GDP could increase further with
support from the Indian Government in the form of increased investments
The Indian plastics industry is quite upbeat about the future potential
of plastics in India, believing that the Plastics industry will
grow between 10% to 12%, if not higher, in this decade. The present
per capita consumption is 4 Kgs, likely to reach beyond 7 Kgs by
2010. Consumption level, which is expected to reach 8 million tons
by 2010, could touch 10 million tons, if some of the constraints
such as infrastructure etc are eliminated. The department of petrochemicals
of the Government of India has projected a level of 12 million tons
Polymer producers like Reliance Industries and IPCL take the lead
in developing the markets in India aided by the major processors.
The present raw material capacity in India is more than adequate
to meet the present consumption level of 4 million tons. In fact,
2003 saw an export of about 700,000 MT of polymer material. Some
debottlenecking is being effected in the areas of PE, PP, PVC and
Polystyrene, resulting in India being a net exporter of raw material
up to 2006. Two major petrochemical projects, with a capacity of
1.5-2 million tons of polymers are likely to materialized earliest
by 2007. If the execution is in time, India may be self-sufficient
up to at least 2010. Raw material supply is no longer a constraint
because very large capacities are available either in the Middle
East or Far East Asian countries such as Singapore, Korea, Thailand
etc. These destinations are close to India, and polymer cost is
affected only by a surcharge in the form of about US$ 20-25/ton
on account of additional freight.
Imports of specialty materials or the grades not manufactured by
the Indian raw material manufacturers continue. It is estimated
that almost 250,000 MT of polymers was imported in 2003. The tariff
barrier is systematically reducing. The present custom duty is 20%.
It is expected that it may come down to about 5-6% with in next
3-5 years, if not earlier.
The plastics machinery sector has achieved a sales turnover of
more than US$ 200 million in 2003. In fact the positive trends of
the overall economy in 2003 had given an impetus to the plastic
machinery sector, which grew at 25% in 2003. However, being a cyclical
business, such spectacular growth may not be witnessed consistently.
The major advantages that India could offer is availability of low
cost and higher educated people with knowledge of English language.
It is therefore not very surprising that W &P sources the parts
of their extrusion machinery from an Indian machinery manufacturer.
Quality of finished goods is definitely very good. Production costs
in India are estimated to be 20-25% lower than in USA. Plastics
products such as BOPP film, BOPET film, moulded products have a
good growth potential for exports from India. There is also a good
export potential of CD, DVD etc. K2004 (Plastics Industry’s
largest exhibition) to be held in Dusseldorf, will have over 20
exhibitors from India, of which almost half will be machinery manufacturers,
and the others would comprise of additive manufacturers, mould manufacturers
along with India’s leading petrochemical manufacturers.
While there was some anxiety among the common mass about the pace
of reforms with the change in power, it seems that the present Government
cannot stop the pace significantly. The major coalition partner
Congress was in power when the economic reforms were initiated.
Interestingly the present President and Prime Minister are very
highly educated and revered for their contribution to India’s
growth. The present Prime Minister was in fact, the writer of the
first reforms in 1991. However, it is too early to predict whether
the present Government would be as buoyant about reforms as the
previous NDA Govt. mainly because the communist party is supporting
the present coalition Govt. However, we strongly believe that the
growth of plastics would continue at least at 10% if not at 14%
despite some deceleration of the reform process.
There is no reason for the foreign investors interested in Indian
market at all. While conducting of detailed investment analysis
would be of assistance, it should be feasible to achieve at least
10% return on investment (the earning power) if not higher. The
return could be higher in the downstream sectors such as processing
and machinery. Perhaps the earning power could be lower for the
petrochemical sector. It would be a good idea for a new entrepreneur
to study the companies listed in the question 1 for developing more
(www.plastemart.com has a pool of consultants for the plastics industry.
In our opinion, the following are outstanding features of Indian
economy that would have positive impact in 2004.
||The reforms may slow down but will not stop despite the change
in the Government.
||Higher convertibility of Indian currency
||An increasing level of foreign exchange (at present it is US$125
billion) mainly due to influx of foreign money into India.
||Major emphasis on the investment in irrigation and other areas
to boost the rural economy (consisting of about 70% of population
and 35% of the overall economy)
||Emphasis on the power generation with the support of the private
||An increase in the growth of cement, steel, automobile, etc industries
||Optimism in the industry as can be seen in the stock exchange
as well as the first quarterly (April-June 2004)
financial results of the Indian industry.
||An impressive growth of about 15 % in the total trade expecting
to reach a level of about US $130 billion in 2004.
||Similar growth of export of plastics and is expected to reach
a level of about US $1.25 billion.
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