He was earlier the vice-president of Polyolefins India Ltd and has a wide experience in manufacturing range of products, corporate planning and project execution. Lashkari, through his firm, offers consultancy services to the chemical industry, specially to petrochemicals, polymers, fine and speciality chemicals. Excerpts:

On the structure of the industry

The chemical industry can be structured into four different levels. First comes the hydrocarbon providers, which include refineries and companieslike Reliance and IPCL. These companies manufacture commodity products which are raw materials for the next stage.

This is the first line convertors, companies like Herdillia, HOC fall under this category. They manufacture chemicals like nitrobenzene, phenol, aniline etc. These products are used by the second generation convertors, who manufacture a large variety of organic intermediates.

Organic intermediates are used by companies manufacturing the final products like dyes, pharmaceuticals, agrochemicals, fine chemicals etc.

A characteristic of the industry is that as we go down the value chain the fixed cost required for setting up a plant decreases.

Thus it requires higher cost to set up a refinery than a petrochemical unit, which is higher than a intermediate product plant, which in turn requires more capital cost than a fine chemical or finished good plant. This to a large extent explains the existence and fragmentation of the drug and dye industry.

Also as we move down the value chainavailability of technology decreases at the same time intellectual needs increases. Major tremor for patent from overseas is directed at this sector. Thus for setting up a refinery, technology is easily and comparatively cheap than for setting up a fine chemicals or a new bulk drug plant.

Labour costs, however, rises as we move up the value chain. Thus for a refinery labour cost could be as low as two to three per cent, while for a fine chemical plant it could be as high as 20 per cent.

On the competitiveness of Indian companies at each stage

Indian players are fairly competitive in the first stage, that is at the refinery and hydrocarbon providers stage. We have world scale plants with strong technological capabilities. There is, however, a cause of worry as the roughly 50 per cent of the feedstock (crude oil) is imported, this has gone up from 30 per cent earlier largely due to stagnating oil production.

Though currently the foreign dependency is favourable as international crude oil pricesare low (these are expected to remain low for the next three to five years). India will have to reduce the dependence on imports.

As far as first line convertors are concerned we do have the capabilities of being competitive. The current sizes in the industry are small as compared with world standards, but these are planned to be upgraded to world class capacities.

The main strength of the Indian industry lies in the final product segment. This is a technological and manpower intensive industry. India has a very strong technological manpower base. We have some of the best chemists in the world. We are able to develop processes through cheaper routes.

Our weakness, however, is in developing formulations. It is this area where Indian companies need to work upon. Further, in the post WTO era, this will be the most vulnerable sector. Drugs, agrochemicals and fine chemicals industries are already been attacked for patent rights violation. Dye industry is by and large left alone because the developed worldneeds such a product to be sourced from outside. To counter such threats we will need to improve our patent capability and at the same time we need to develop R&D for application development. This, however, is a costly process, but the industry will need to develop capabilities to survive in the long run.

On the petrochemical industry scenario

As far as the domestic petrochemical sector is concerned it is facing serious overcapacity problems. Reliance has a 0.75 million tonnes ethylene capacity and 0.37 million tonnes propylene capacity. IPCL has an overall 0.85 million tonnes ethylene capacity and a 0.06 million tonnes propylene capacity which is likely to be increased to 0.15 million tonnes. Nocil has recently announced that it is setting up a 0.45 million tonne ethylene capacity which will be expandable to 0.6 million tonnes. Gail is on the verge of commissioning its 0.3 million tonnes ethylene plant, while Haldia Petrochemicals will set up a plant of 0.42 million tonnes of ethylene and 0.21tonnes of propylene. These are firm capacities that will be available in the market. As for speculative capacities TIDCO along with BPCL is likely to set up a 0.3-0.6 million tonne capacity, while there have been announcements made of capacities being set up in Punjab, Karnataka and Assam.

Further there will be propylene entering the market from the refiners. World over major portion of propylene is recovered from refineries, while in India we have a substantial amount coming from crackers because refineries are scattered. Newer large refineries like Reliance, Essar etc have plants to recover propylene.

Around 0.4 million tonne of propylene is expected from Reliance's Jamnagar refinery, 0.1 million tonne from Essar's refinery. Propylene demand will more or less match supplies. World over polypropylene market is growing much faster than polyethylene markets, which will be the case in India too.

In case of polyethylene there is likely to be a glut when all the projects go on stream. This will onlyaggravate the problem of oversupply. Indian companies will have to aggressively tap foreign markets to market their produce.

On the future of small scale sector in the chemical industry

Major consolidation is expected in the small scale sector. However, in order to survive, the sector will have to go in for specialisation of products rather than manufacturing a range of commonly available products.

The government's policy of reserving certain products is actually doing disservice to the sector. Paracetamol industry is a case in the point. Further, with the stress on environmental pollution small scale manufacturers are actually at a disadvantage. The sector is reserved for investments upto Rs 3 crore, while investments required for proper safety and pollution control is to the extent of Rs 3-5 crore. In such circumstances the very survival of the sector is in question. The concept of central effluent treatment plants is not a solution. It just does not work because monitoring pollutants is aproblem.