Volume: 2; Issue: 7; July-2016; pp 791-798.

ISSN: 2454-5422
Role of FDI in Fertilizer Industries in India
M.Muthu Vadivoo
Lecturer, Department of Modern Office Practice, State Institute of Commerce Education, Tharamani, Chennai, India
Corresponding Author E-mail: [email protected]

Abstract
One of the most striking developments during the last two decades is the spectacular growth of
FDI in the global economic landscape. This unprecedented growth of global FDI in 1990 around
the world make FDI an important and vital component of development strategy in both
developed and developing nations and policies are designed in order to stimulate inward flows.
Infect, FDI provides a win win situation to the host and the home countries. Both countries are
directly interested in inviting FDI, because they benefit a lot from such type of investment. The
home countries want to take the advantage of the vast markets opened by industrial growth. On
the other hand the host countries want to acquire technological and managerial skills and
supplement domestic savings and foreign exchange. The proposed paper shares with some
theoretical and data informations such as overall FDI, inflow of FDI in India, status, present
targets, conclusion respectively.
Keywords: FDI, RBI, Ministry of fertilizer and chemical Industries
Introduction
Foreign direct investment in India
The Indian government made several reforms in the economic policy of the country in the early
1990s, which helped in opening the country's markets to foreign direct investment. The
government of India, in order to increase the flow of FDI in the country, simplified the
procedures for FDI in the country. FDI in India comes through non- resident Indians,
international companies, and other foreign investors.
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Chemicals industry in India

The chemicals industry in India was worth more than US$ 40 billion in 2004- 2005. The industry
of chemicals in India is an important part of the economy of the country, for it constitutes around
6% of the country's GDP. The total amount of exports from the chemicals industry in India stood
at US$ 12 billion in 2004- 2005. The chemicals industry in India produces over 70,000 varieties
of products.
FDI policy in chemicals industry in India

Up to 100% Foreign Direct Investment (FDI) is allowed through the automatic route for
all the items in the chemical industry except for the chemicals that are of hazardous
nature for which the approval of the government is required.

The government plans to establish chemical parks in SEZs in order to provide world class
infrastructure, increase clustering, and also ensure concessions in tax.

Amount of FDI inflows to chemicals industry in India

FDI Inflows to Chemicals industry in India has registered significant growth in the last few
years. The total amount of FDI Inflows to Chemicals industry in India stood at US$ 1,316
million between 1991 and 2002. International companies having operations in chemicals industry
in India are:

Dow Chemical

BASF

Du Pont

Bayer

FDI inflows to chemicals industry in India has given boost to the industry:
The increased flow of foreign direct investment in the chemicals industry in India has helped in
the development, expansion, and growth of the industry. This in its turn has led to the
improvement of the quality of the products from the industry.

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There is a considerable decrease in the tariff rates on various importable goods. FDI inflows in
India from1948 2010. FDI inflows during 1991-92 to March 2010 in India increased manifold
as compared to during mid 1948 to march 1990 (Chart-1.1). The measures introduced by the
government to Liberalize provisions relating to FDI in 1991 lure investors from every corner of
the world. There were just few (U.K, USA, Japan, Germany, etc.) major countries investing in
India during the period mid 1948 to march 1990 and this number has increased to fifteen in 1991.
India emerged as a strong economic player on the global front after its first generation of
economic reforms. As a result of this, the list of investing countries to India reached to maximum
number of 120 in 2008. Although, India is receiving FDI inflows from a number of sources but
large percentage of FDI inflows invested with few major countries. Mauritius, USA, UK, Japan,
Singapore, Netherlands constitute 66 percent of the entire FDI inflows to India. FDI inflows are
welcomed in 63 sectors in 2008 as compared to 16 sectors in 1991.
Historical Development
Chemical industry is one of the oldest industries in India. The industry, including
petrochemicals, and alcohol-based chemicals, has grown at a pace outperforming the overall
growth of the industry. The Chemicals Industry comprises both small and large scale units. The
fiscal concessions granted to small sector in mid-eighties led to establishment of large number of
units in the Small Scale Industry (SSI) sector. Currently, the Indian Chemical Industry is in the
midst of major restructuring on product innovation, brand building and environmental
friendliness, this industry is increasingly moving towards greater customer-orientation. Even
though India enjoys an abundant supply of basic raw materials, it will have to build upon
technical services and marketing capabilities to face global competition and increase its share of
exports. Chemical fertilizers and pesticides played an important role in the "Green Revolution"
during the 1960s and 1970s. The consumption of pesticides in India is low in comparison to
other countries. Indian exports of agrochemicals have shown an impressive growth over the last
five years. The key export destination markets are USA, UK, France, Netherlands, Belgium,
Spain, South Africa, Bangladesh, Malaysia and Singapore. The Government is promoting
research on the use of alternative and unharmful pesticides using Need seeds. A country
programmed entitled "Development and Production of Need Products as Environment Friendly
Pesticides" is being undertaken by the Department of Chemicals and Petrochemicals with the
financial assistance of United Nations Development Programmed (UNDP)/United Nations
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Industrial Development Organization (UNIDO). The project is being implemented at two

locations viz., Nimpkish in West Bengal and Nagpur in Maharashtra to promote production,
processing and use of need-based products, thereby aiding wasteland development, generating
rural employment and providing farmers with eco-friendly/bio-degradable pesticides.
Petrochemical industry is a cyclical industry. Globally the petrochemical industry is
characterized by sluggish demand and volatile feedstock prices. In India, consumption of
petrochemical products is still one of the lowest in the world. For example in case of polyester,
India's per capita consumption is 1.4 kg compared to 6.6 kg for China and 3.3 kg for the world.
In case of polymers, per capita consumption of India is 4 kg and is about a fifth of the world.
Demand for the petrochemicals products has grown in double digits for a long period.

Pesticides and Agrochemicals

India is currently the largest manufacturer of Pesticides in Asia, second only to Japan Indias
pesticide market, long stifled by various government controls and poor demand, is projected to
more than double to $5 billion by 2017 on higher incomes and better awareness among Farmers
are getting higher MSPs minimum support prices) of crops than in the past, and they know how
much they will lose if they dont prevent crops from pest or insect attacks. Also, as farm
practices are improving, the use of pesticide will get a boost. During the last five-year Plan,

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through 2011-12, the government raised MSPs of various crops in the range of 29% to 107%.
Moreover, Indias per capita pesticide consumption of 600 gm is far below its major Asian peers
14 kg in China and 12 kg in Japan. The domestic market has immense growth potential
because of the low level of consumption. With increasing focus on scaling up of productivity and
preventing crop losses to feed a billion-plus population with limited land resources, the reliance
on pesticide is only going to rise. The Indian pesticide industry has advanced significantly in
recent years, producing more than 1,000 tons of pesticides annually. India is the 13th largest
exporter of pesticides and disinfectants in the world, and in terms of volume, is the 12th largest
producer of chemicals. However the average Indian consumption is very low, merely1/20 th of
world average. Consumption varies depending on crop and region Cash crops like sugarcane,
tobacco etc. are the major consumers of pesticides (above 60per cent) there are two types of
producers out of them there are about 40 Technical producers and above 500 formulators. United
Phosphorus, Rallis and Excel are the major Indian players. Multinational like Hoechst, Aggreko,
Novartis, Bayer etc has significant share in the matter.
Present status of the chemical industry
With Asias growing contribution to the global chemical industry, India emerges as one of the
focus destinations for chemical companies worldwide due to high domestic demand, significant
knowledge pool and favorable demographic dividend. The Indian chemical industry, estimated to
be $108 billion, is at the threshold of accelerated growth. Indian chemical sector ranks 6thin the
world and3rdin the Asia. It is also one of the largest industrial sectors in the Indian economy and
an important employment generator. The Indian Chemical Industry comprises both small and
large-scale units, and presently, there are about 40,000 chemical manufacturing units located in
the country out of which about 80% are covered in the small scale sector. This sector provides
employment to about 3.3 million people. There are no quantitative or other restrictions on the
import of chemicals except for few chemicals which are covered under the obligations as per
International Conventions. Indian chemical industry exports dyes, pesticides and specialty
chemicals to the developed world and to the developing countries which form about 3% share in
the global market and contributes significantly to the foreign exchange basket of the country.
The fiscal concessions granted to small scale sector in mid-eighties led to the establishment of a
large number of units in the Small Scale Industries (SSI) sector. In the chemical sector, 100%

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FDI is permissible under automatic route. Manufacture of most chemical products inter-alia
covering organic / inorganic chemicals, dyestuffs and pesticides is de-licensed. Entrepreneurs
need to submit only IEM (Industrial entrepreneurs Memorandum) with the Department of
industrial Policy and Promotion to set up chemical manufacturing. Only the following items are
covered under the compulsory licensing list because of their hazardous nature:
Hydrocyanic acid & its derivatives
Phosgene & its derivatives
Isocyanides & di-isocynates of hydrocarbons
The basic customs duty on most chemical feedstocks is 2.5%. Import Duty on most of the
chemical products is at 7.5% ad valorem. In neural, the central excise duty rate for chemical
sector is about10%.
Vision, targets and future thrust areas
The Indian chemical industry is poised for growth, and a clearly defined vision has been
developed to enable it. Vision for Indian Chemical Industry is:
To facilitate the growth and development of the chemical industry in an Environmental
friendly manner; with focus on innovation to meet local needs, sustainability and Green
technologies and processes; so as to enable it to become a globally competitive major-player two
distinct scenarios for the future of the Indian chemical industry would emerge.
The conservative scenario, with an overall GDP growth rate of 8-9% path Indian chemical
industry could grow at 11% p.a. to reach the turnover of $224 billion by 2017. However, the
Indian chemical industry could aspire to grow much more and its growth potential is limited only
by its aspiration& imaginations.
The optimistic scenario of high enduse demand, based on increasing per capita consumption,
improved export competitiveness and resultant growth impact for each sub-sector of the
chemical industry could lead tan overall growth rate of 15% p.a. to reach turnover of $290 billion
by 2017. This would require the industry to not only effectively meet its domestic demand but
also exploit the huge export market potential. The evolution of the chemical industry globe Lily
provides valuable pointers to understand how countries/ regions have ensured growth. For

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example, the European chemical industry, faced with a structural framework of limited carbon
Based feedstock availability, focused on specialty chemicals segment which has A much lower
dependence on raw materials than base chemicals. Effective utilization of its strengths in
technology and access to markets enabled the growth of specialty chemicals segment which
currently accounts for 40% of the total chemical sales (excluding pharmaceutical) in Europe.
Simultaneously, European chemical companies set up subsidiaries in oil-producing countries to
minimize feedstock risk. Likewise, the Japanese chemical industry grew significantly based on
government initiatives such as low interest rates, policies to encourage imports of raw material
and technology rather than finished products and invested in setting up of large petrochemical
complexes. This was complemented by a strong R&D focus in particular from the late 80still
early nineties, basically "innovating" out of the less favorable position at that time. Indian
chemical industry could draw inspiration from these examples and provide the necessary Thrust
for development of specialty chemicals industry to bypass feedstock availability challenges.
Thrust areas for chemicals include specialty chemicals developed in close-collaboration with
End-user industries, green chemicals, feedstocks, etc., including bio-fuels, and exploiting export
opportunities for generic agrochemicals and pharmaceuticals.
Conclusion
The economic reforms of 1991 had a significant impact on the domestic chemical industry. With
the onset of liberalization, the hitherto protected industry was exposed to international
competition, which had been insulated so far by keeping high tariffs and import substitution
centric policies. With the advent of liberalization, the role of the public sector substantially
reduced, and the focus of the industry gradually shifted from base chemicals to petrochemicals,
pharmaceuticals, specialty chemicals, construction chemicals, dyestuff and a wide range of agrochemicals.
Reference
Ms. Sapna Hooda-a study of FDI and Indian economy-national institute of technology (deemed
university) kurukshetra 136119
Ministry of Finance, Report of the economic survey, Government of India, New Delhi (2003-04
www.cci.in

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Das, Taren 1998 Liberalization of Foreign Policy in India Some Observations, Visalia, Vol.
23, No.1, pp. 39-40.
Government of India-Ministry of Chemicals and Fertilizers-Department of Chemicals and
Petrochemicals
Reserve bank of India FDI Report-2016

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