Growth Challenges In The Indian Colorants Industry

The colorants industry, comprising producers of dyes, pigments and their intermediates, is an important part of the chemical industry, particularly in India and China. Products from the industry serve the function of coloration (setting aside the intermediates that are their raw materials), and this happens through multi-step chemical synthesis, often in batch mode using technologies that have stayed more or less unchanged for several decades. The industry therefore bears a significant environmental footprint, and this is posing sustainability challenges that the industry, especially in India, is hard pressed to deal with.

Dyes and pigments are used to colour several products – textile fibres, paints & coatings, inks, plastics, leather, paper, pharmaceuticals, foods and cosmetics, to mention a few. While dyes are typically soluble in water, pigments are not and typically used as dispersions in a matrix that is usually a synthetic polymer to effect coloration.

From west to east

Production of colorants has seen a more or less complete shift from west to east – over a 20-year period from 1990 onwards – driven by two factors. The implementation of strict environmental norms in the developed parts of the part, particularly in Western Europe – the traditional home of the industry – and in North America, was the first, and most important driver of the change. The second was the stagnation in end-use markets there and their rising growth prospects in emerging economies, particularly in the populous countries of Asia, including India, China and Indonesia, and more recently Vietnam, Bangladesh, Cambodia etc.

Today, colorants production in the west is an exception and nearly all of world demand is met from producers mainly in China and India. What remains in the west, however, are the finishing stages of production (applicable more to pigments than dyes), which, however, add significant value. In a sense, producers in India and China, barring a handful in each country, are left fighting for scraps!

Three phases of growth

The growth of the colorants industry in India can be categorised into three broad phases. The first – from the 1950s to the 1970s – were the early days, when a handful of units, including a few joint ventures, were established to primarily serve the needs of the nascent textiles and paints industries. The focus was on meeting domestic needs, and through the import of most raw materials and intermediates, as the broad chemical industry too was undeveloped. The second phase – from the 1970s to the 1990s – saw the mushrooming of several small sized units, especially in Gujarat, based on locally available raw materials, and benefitting from excise duty concessions for small businesses. The first forays into exports began around this time. The third ongoing phase has seen India emerge as a significant producer on the world-stage and even as the largest supplier in some categories. This comes from a supplier base of over a 1,000 units, of which just about 50 can be considered large by global standards. As the industry grew, in this fragmented manner, its environmental challenges came to the fore.

Today, the Indian colorants industry is in the crosshairs of regulators. Reports of closures for flouting environmental rules have become commonplace, and have, at times, come from judicial authorities, when regulators turned a blind eye. The industry is losing its social license to operate – a dangerous situation that needs to be corrected if the industry is to set itself on a sustainable path for growth.

Change needed – now it the time to begin!

Obviously, change will take time to come. There is no magic wand that can set aside all of the industry’s problems and leave itself clean and green. But the opportunity to reinvent is very much here and now and will need several set of measures – some internal and external.

The good news is that this is as good a time as one could ever get! The tightening of environmental norms in China is now widely seen as a permanent change that will lead to more responsible behaviour across a whole range of industries, colorants included. While several manufacturers will fall by the wayside, those allowed to operate will have to clean-up their act. This should reflect in more sensible and realistic product pricing, a better balancing of markets and healthier margins not just for producers in that country. How soon these changes will play out is less clear. In some value chains the supply overhang is so heavy that it will take several years before demand and supply come on a more even keel; in others it may be a lot quicker.

External conditions in India are also supportive of change. Economic growth is expected to stay robust for the near future; and the introduction of GST and expansion of markets imply a larger role for integrated producers of sufficient scale. This could drive a consolidation in the industry – an aspect that has hitherto been missing here; on the contrary there was every incentive to fragment and benefit from tax concessions.

Technological modernisation – need of the hour

First and foremost the industry needs to invest in technology modernisation and upgradation. While some of the larger units have invested considerable capital to improve efficiencies, reduce & treat wastes etc., at times due pressures from their consumers, most have not. This has been not just due lack of funds, but also of capabilities, and could be overcome by judicious handholding and partnerships. It is not far-fetched to expect larger units who have undergone the journey of technological modernisation to mentor and partner a few who have the inclination but lack the expertise to go down this journey. Such arrangements have worked well for example, in expanding the list of chemical companies that are compliant with the stringent codes of Responsible Care – a demanding and not inexpensive exercise. Industry associations can and must play a role here – their responsibility cannot end with organising conferences, picnics and lobbying for tax concessions and tariff protection against cheap imports!

One path that large colorants producers can take is to goad their suppliers, say of intermediates, to modernise and comply with existing norms. While this has happened at times with foreign buyers exerting pressure down their supply chains, not too many examples can be found of Indian companies working with their vendors. Nothing works as well as pressure from customers – local or international!

As pointed out earlier, colorants manufacture uses several chemistries deemed nasty and waste generating – sulphonation, alkali fusion, diazotisation, chlorination, reduction etc. The industry needs to invest in development of alternate cleaner options for these chemical transformations, and must support projects at research laboratories and academic institutes such as at CSIR-National Chemical Laboratory at Pune or the Institute of Chemical Technology at Mumbai. The former used to have an active programme in dyestuffs technology development that needs to be revived, and the latter still remains probably the only academic institute having a department focussed exclusively on colorants. Such developmental efforts could be beyond the financial means of individual units, but certainly not of a consortium. Issues such as sharing of the intellectual property so generated can be overcome with some foresight, using well-established models.

Rational regulation

Regulators can help as well – by rewarding the compliant as promptly as punishing the deviants. There have been proposals to, for example, provide operating licenses for extended periods for those units that follow the tenets of Responsible Care, for example, and this is a good model to follow. The norms for effluent discharge need a relook – it makes little sense to have the same norms for deep-sea marine discharge as for release into a local water body. The colorants industry is notoriously wasteful of water and energy and sensible pricing of these could provide economic incentive to industry to invest in measures to reduce both. Companies should be permitted to write-off expenses on these counts.

Sustainable growth – the next phase of the industry?

Setting the Indian colorants industry on a path of sustainable growth is important, both in itself and as an example for others. The industry has, by and large, been mired in doing business the same old way – be it in the products that it makes, the value addition that it brings, and the way it manages its operations, especially from the viewpoint of environmental compliance. In all of these aspects it needs to change to ensure a future for itself – to meet local and global needs. The next and fourth phase of growth of this industry must be a more sustainable one.