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Research Project on

“CHEMICAL MSME SECTOR IN INDIA”

SANKET PATIL

Forensic - CCS

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CONTENTS

Laws and Regulations ..3

Industry Bodies and Forums ..8

Indian Market Landscape in terms of Micro, Small and Medium Enterprises ..11

I.T. Expenditure Estimation ..12

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i. Laws and regulations

Prime drivers for Chemical rules in India are –

1. Bhopal Gas Disaster, 1984

2. Environment (Protection) Act, 1986

3. Multilateral Environment Agreements (MEAs)

4. Responsible Care; OHAS 18001

OBJECTIVES:-

1. Prevention of major accidents

2. Limiting the consequences on man and environment

3. Safety, control measures and co-ordination amongst industries

Rules under Environment (Protection) Act, 1986 –

Manufacture, Storage and Import of Hazardous Chemical Rules, 1989, 2000

Chemical Accidents (Emergency Planning, Preparedness and Response) Amendment Rules,

1996

Public Liabilities Insurance Act, 1991, 1992

Health and Safety Laws and Regulations –

Factories Act, 1948, 1987

Explosives Act, 1889 – Gas cylinder rules, 1981

Petroleum Act, 1934, Rules, 1976

Motor Vehicle Act, 1988

Multilateral Environmental Agreements for Chemical Safety and Management –

(Major conventions governing government activities in India)

Chemical Weapons Convention, 1993

Stockholm Convention on Persistent Organic Pollutants, 2001

Rotterdam Convention on Prior Informed Consent, 1999

SECTORIAL VIEW

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Chemical Rules in India – Background

Industrial Activities covered in regulations –

Production, storage, use and import of specified hazardous chemicals

Chemical and petrochemical substances having hazardous (flammable, explosive, corrosive,

toxic) properties

Storages of hazardous chemicals not associated with processes

Manufacture, Storage and Import of Hazardous Chemical Rules

Chemical storage in plant premises –

Low Level – 684 Chemicals

Medium Level – 179 Chemicals & Threshold Quantity

High Level – 17 Chemicals & Threshold Quantity

Storage of chemicals away from the main process – 30 chemicals & Threshold Quantity

Manufacture, Storage and Import of Hazardous Chemical Rules

- Requirement in case of low level chemicals

Identify hazards associated with industrial activity and take adequate steps for

prevention and control

Provide relevant information to persons liable to be affected by a major accident

Develop information in the form of data sheets

- Requirement in the case of medium and high level chemicals and storages away from plant

Conduct a mock drill of emergency plan every six months and submit a report

Maintain records of imports of hazardous chemicals and to provide information to the

concerned authority

Ensure the transportation of hazardous chemicals as per the provision of the Motor

Vehicles Act, 1988

- In case of import of hazardous chemicals the importer needs to ensure that –

The concerned authority has been informed 30 days before such imports

Maintain records of the hazardous chemicals in the prescribes format, and that

The inland transportation of chemicals has taken place as per the Motor Vehicle Act,

1988

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Chemical Accidents (Emergency Planning, Preparedness and Response) Rules

As an offshoot of Bhopal Gas Disaster

Formation of Crisis Groups at:

Central Level

State Level

District Level

Local Level

Central Crisis Group

Apex body to deal with major chemical accidents and to provide expert guidance for

handling major chemical accidents

Continuously monitor the post-accident situation from major accidents, suggest

measures for prevention

State Crisis Group

Apex body in the state to deal with major chemical accidents and provide exert

guidance

Review all district off-site emergency plans in the state and report to the Central

Crisis Group

District Crisis Group

Assist in the preparation of the district off-site emergency plan

Assist the district administration in the management of chemical accidents

Local Crisis Group

Prepare local emergency plan for the industrial pocket

Ensure dovetailing of local emergency plan with district off-site emergency plan

Train personnel involved in chemical accident management

The Public Liability Insurance Act

179 chemicals with threshold quantity

Owner to draw insurance policy more than the paid-up capital but less than INR 50 crore

Owner to provide relief in case of death or injury or damage to property from an accident on

the principle of no fault

“Paid-Up Capital” is the market value of all assets and stocks on the date of insurance

Owner to pay additional amounts as contribution to the Environment Relief Fund

The Owner is required to –

Provide any information require to ascertain compliance with the provisions of the Act

Allow entry and inspection to ascertain compliance with the provision of the Act

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Pay the amount of an award as specified by the District Magistrate

Factories Act, 1948

Major amendments in 1987 after Bhopal Gas Disaster

Occupational Exposure of chemicals (Limits of over 100 items specified)

Motor Vehicle Act

Inland Transportation of Dangerous Goods (hazardous chemicals)

Glass Labels and Safety of Vehicles

Explosives Act

Chemicals stored under pressure conditions –

Gas Cylinder rules

License required if quantity stored in cylinders exceeds specified quantities

Petroleum Act

Storage of Petroleum products and safety precautions

License to be obtained from chief controller of explosives

Chemical Weapons Convention

Purpose of Convention: Not to undertake whatsoever to –

1. Develop, produce, otherwise acquire, stockpile or retain chemical weapons, or transfer,

directly or indirectly, chemical weapons

2. Use chemical weapons

3. Engage in any military preparations to use chemical weapons, or

4. Assist, encourage or induce in any way, anyone to engage in any activity prohibited by the

convention

Overview of scheduled chemicals and examples of affected industries

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Schedule 1 Chemicals: Little or no use in industrial and agriculture activities, but may have

limited use for research, pharma, medical or public health

Schedule 2 Chemicals: May be useful for chemical weapons, can have legitimate uses in:

i) Flame retardant additives and research

ii) Dye and photographic industry

iii) Medical

iv) Metal plating &

v) Epoxy resins

Schedule 3 Chemicals: can have legitimate uses in

i) Resins,

ii) Plastics,

iii) Pharma,

iv) Pesticides,

v) Batteries,

vi) Cyanic acid,

vii) Toiletries

Unscheduled discrete organic chemicals: used in a wide variety of commercial industries and

include acetone, benzoyl peroxide and propylene glycol

Voluntary Initiatives

OHAS (BSI 18001)

Uptake of System in India: Very Quick

Over 250 units certified

70-80 of those certified chemical units

Responsible Care

Many chemical units in India follow the requirements

Sources – http://r0.unctad.org/trade_env/test1/meetings/brussels2/sess3.a.CII%20Pres%20on%20Chem%20Safety%20Rules.nyati.pdf

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ii. Industry body and forums

1. Indian Chemical Council (ICC)

Established in 1938; dedicated to the growth and promotion of all branches of

Chemical Industry in India through a variety of events, trainings, awards and recognitions,

policy advice and other useful activities

(http://indianchemicalcouncil.com/)

2. CropLife India

Voice and advocate of the plant science industry. Protects the interest of member

companies by engaging with decision makers and other stakeholders at the right

platforms. It provides scientific information for future development of government

policies and influence implementation of these. The key goal is to raise awareness of

the contribution that the plant science industry makes to development of sustainable

agriculture and ongoing competitiveness of the Indian agricultural exports.

Develops, manufactures and markets crop protection products used by Indian farmers.

CropLife India has introduced 226 out of 230 pesticides registered in India.

(http://croplifeindia.org/)

3. CPMA India

The apex forum representing the Indian Petrochemical Industry. Established in 1993,

it provides a linkage between the industry, the government and the society. Interacts

with policy authorities and industry associations to develop and maintain harmonious

and conducive business conditions. It operates through different branches namely –

Polyolefins

Vinyls

Styrenics

Glycols

Surfactants

http://cpmaindia.com/objectives.php

4. Alkali Manufacturers’ Association India

Represents Indian Chlor-Alkali Industry nationally and globally. Facilitates the

industry’s commitment to technological and economic growth, continuous

improvement in protecting human health & environment, guided by sound science,

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technology and risk management principles. Proactively promotes the industry

through practices that are fair, inclusive and sustainable.

http://www.ama-india.org/

5. Department of Chemicals and Petrochemicals

Part of the Ministry of Chemicals and Fertilizers. Entrusted with the responsibility of

policy, planning, development and regulation of chemicals and petrochemical

industries. The business allocated to this department is –

Insecticides

Molasses

Alcohol (Industrial and potable)

Dye-stuffs and intermediates

All organic and inorganic chemicals (which are not specifically allotted to

any other ministry/department)

Planning, development and control of all ministries dealt with by the Dept.

Bhopal Gas Leak Disaster special laws

Petro-chemicals

Industries relating to production of non-cellulosic synthetic fibres

Synthetic rubber

Plastics

http://chemicals.nic.in/

6. Indian Specialty Chemical Manufacturers

All India body representing manufacturers of Specialty chemicals established in 1952.

Its members consist of large, medium and small sized units. The membership of the

association is open to manufacturers of chemical for textile, leather, paper, paint,

rubber, fertilizer, engineering, oil and many other industries. Membership now

opened for indenter of multinational companies as associate member.

http://www.iscma.in/

7. Ministry of Petroleum and Natural Gas

http://petroleum.nic.in/

8. Oil Industry Development Board

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The Oil Industry (Development) Act, 1974 was enacted following successive and steep

increase in the international prices of crude oil and petroleum products since early

1973, when the need for progressive self-reliance in petroleum/petroleum based

industrial raw materials assumed great importance.

http://oidb.gov.in/

9. Petroleum Conservation Research Association

Formulates strategies and promotes measures for accelerating conservation of

petroleum products leading to environment protection, energy security and

sustainable development.

Promotes research, development and deployment efforts aimed at petroleum

conservation and environment protection

Establishes synergistic institutional linkages at the national and international

levels in the areas of petroleum conservation and environment protection

Provides training &technical advisory services; functions as a think tank to

the government for proposing policies and strategies on petroleum

conservation, aimed at reducing excessive dependence on oil.

http://pcra.org/

10. Directorate General of Hydrocarbons

Established in 1993 under the administrative control of Ministry of Petroleum and

Natural Gas. Promotes sound management of the oil and natural gas resource having a

balanced regard for environment, safety and technological & economic aspects of the

petroleum activity.

Responsibilities include implementation of New Exploration Licensing Policy (NELP),

matters concerning Production Sharing Contracts for discovered fields and

exploration blocks, promotion of investment in E&P sector and monitoring its

activities.

http://dghindia.org/

11. Petroleum Planning and Analysis Cell

http://ppac.org.in/

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iii. Indian market landscape in terms of micro,

small and medium enterprises

Micro, small and medium enterprises contribute nearly 8% of India’s GDP, 45% of the

manufacturing output and 40% of the exports. The share of MSMEs in the GDP is gradually

declining. After analyzing the growth statistics of MSMEs, a reasonable conclusion made in this

regard was that the growth in MSME numbers may be actually happening in the low productivity,

unorganized segments with relatively lesser contribution to the country’s growth parameters.

Hence the gradual decline.

Ref. - http://msme.gov.in/Accelerating%20Manufacturing%20in%20the%20MSME%20Sector.pdf

Presently there are ~ 12.5 million registered MSMEs in India, employing ~ 30 million people.

With regard to MSMEs in the Chemical Sector, the following points are significant in the

Indian context –

The industry is broadly categorized into two sections – organic (petro & agro-chemicals,

drugs, cosmetics) and inorganic chemicals (alkalis, dyes, dyestuffs)

A more functional classification can be made by dividing the industry into specialty

chemicals (adhesives, additives, lubricants, antioxidants, biocides, corrosion inhibitors,

dyes) and fine chemicals (used by pharmaceutical and agrochemical industries). Both are

low volume, high margin.

Figure 1 Ref. - https://www.dnb.co.in/Chemical/overview.asp

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IT EXPENDITURE

The Scene up to 2009

According to a survey in 2009, IT adoption is largely prevalent among chemical SMEs with

more than 75% of the respondents belonging to this industry adopting IT in their business. However

the share of IT of 58% of the chemical SMEs was less than 1%. The survey also revealed that only 4%

of the respondents are planning to increase their IT budget.

Figure 2 Ref. - https://www.dnb.co.in/SMEMumbai2009/ClusterTrends.asp

A NASSCOM report published around July 2014 predicts that SMEs in India are likely to double

their IT expenditure by 2017-18. This news is in congruence with the estimations published in

SupportBiz.

The NASSCOM report claims that SMEs are expected to double their IT expenditure to over 1

lakh crore by 2017-18.

In 2012-13, Indian SMEs spent an amount of INR 47,200 CR (USD 8.7 billion) on IT

infrastructure and services, and expected to double to USD 18.6 billion by 2017.

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PART A Estimation of IT spending by Indian SMEs in various years

Taking 2012-13 as the base year, (y = 0) and the respective investment as the base

investment (x = 8.7),

Assuming that the growth in investment follows a linear trend YOY, x = my + C y = 0 gives x = 8.7 (billion USD) C = 8.7 In 2017-18 (i.e., y = 5), x = 18.6 (billion USD)

18.6 = 5m + 8.7 m = 1.98

Hence the IT investment, x (in billion USD) can be estimated for any FY between 2012-13 (y = 0) and 2017-18 (y = 5) IT investment in 2015-2016 (y = 3) = USD 14.64 billion = INR 934.62 billion Assuming that the spend on IT is in direct proportion with production, The share of Chemical MSMEs in total production is 8%

The share in IT spending for the year 2015-16 = 0.08 x 14.64 ≈ USD 1.17 billion

= INR 74.72 billion

The study reveals that out of the total expenditure on IT by SMEs –

45% is spent on Hardware,

40% on IT services, and

15% on SaaS * Hence the expenditure on IT Services = 0.4 x 74.72 billion ≈ INR 30.00 billion * SaaS (Software as a Service) is a software distribution model in which applications are hosted by a vendor or service

provider and made available to customers over a network, typically the Internet.

x = 1.98y + 8.7

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PART B Average IT Expenditure Estimation

The info obtained from – http://blogs.economictimes.indiatimes.com/thewindbeneaththewings/http-author-blogs-economictimes-com-thewindbeneaththewings-entry-anchor/ estimates the total number of MSMEs in India (registered + unregistered) to be 45 million units as of 2011. The info obtained on vibrantgujarat.com indicates that the number of registered SMEs (y) versus the year (starting from 2007-08 as x = 1) follows the trend –

y = 268188.91 * x – 170894.53 Using this hypothesis, The annual growth rate of registered MSMEs = dy/dx = 268188.91 Hence the growth in registered SMEs from 2011-12 to 2015-16 is – = 268188.91 * 4 = 1072755.64 The ratio of total SMEs to registered SMEs in India is assumed to be fairly constant and has the value 14.73. (http://indiamicrofinance.com/micro-small-enterprises-india.html) Hence the total number of SMEs that has increased since 2011 = 1072755.64 * 14.73 = 15803388.02 = 15.80 million Total SMEs operating in India in 2015-16 ≈ 45 + 15 = 60 million

Average IT Spend per SME = 934.62 billion/60 million =

NOTE: The above value is the minimum value because the value of IT investment is assumed to be for all the SMEs while it is likely that it may only be applicable to the registered SMEs. In that

case,

Average IT Spend per SME = 934.62 billion/ (60/14.73) million =

The spend on IT Services will be – 0.4 x 2,29,800 ≈ INR 1 lakh Additionally it must be noted that the above value is a highly approximate as it does not incorporate the sector-specific utility of IT for SMEs operating in diverse sectors.

INR 15,600

INR 2,29,800

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PART C Sector-wise IT Expenditure Estimation

Referring to fig. 1, and assuming statistical consistency, we can do a segment-wise break-up for various sectors of the chemical industry to estimate the corresponding IT spends –

Segment % share in the Chemical Sector

Total IT Spend (INR billion)

Spend on IT Services (INR billion)

Alkali 71.5 53.42 21.37

Organic 19.6 14.64 5.86

Inorganic 7.2 5.38 2.15

Pesticides 1.3 0.97 0.39

Dye and Dyestuff 0.4 0.30 0.12

PART D

Estimation Based on The Business Standard Findings in Gujarat

A study published in The Business Standard in 2013 (see Sources) reveals findings of IT

investments of Gujarat based SMEs. It must be noted that over 53% of the total Chemical MSMEs

in India operate from within Gujarat, where Chemical is one of the topmost MSME sectors. Hence,

the estimations for Gujarat-based SMEs in general can be assumed to be fairly applicable to the

chemical sector. Based on this hypothesis, the findings of the study in Business Standard can be

used to estimate the approximate IT expenditure by Chemical SMEs.

The study claims that a typical SME with sales revenues of INR 50 – 100 lakh spends around

INR 1 lakh/year (on IT Software + Hardware combined). While an SME with turnover of INR 5 –

10 CR spends around INR 10 – 12 lakh/year on IT expansion.

Applying the ratio of 40% on IT Services, the corresponding amounts annually spent on IT

Services become INR 40,000 (for revenues 50 – 100 lakh) and INR 4-5 lakh (for revenues 5 –

10 CR) respectively.

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Sources –

http://www.businessnonstop.in/tech/smes-to-double-their-it-expenditure-nasscom-fs-

report.html

http://www.supportbiz.com/articles/news/indian-smes-smaller-cities-spend-9-billion-it-2017.html

https://www.dnb.co.in/SMEMumbai2009/ClusterTrends.asp

https://www.dnb.co.in/Chemical/overview.asp

http://www.dnb.co.in/Chemical/

http://www.vibrantgujarat.com/images/pdf/Micro-Small-and-Medium-Enterprises.pdf

http://blogs.economictimes.indiatimes.com/thewindbeneaththewings/counting-the-beans-how-many-msmes-are-in-india-part-i/

http://blogs.economictimes.indiatimes.com/thewindbeneaththewings/http-author-blogs-economictimes-com-thewindbeneaththewings-entry-anchor/

http://www.business-standard.com/article/sme/gujarat-smes-increase-it-spending-by-20-113052700986_1.html

http://indiamicrofinance.com/micro-small-enterprises-india.html