By Dr. Jaijit Bhattacharya & Manoj Dinne
Having sufficient domestic capacities for PVC is key to India’s ambitious goal of crossing the $10 trillion economy mark by 2030 as PVC is an input industrial material for a whopping 29% of the economy.
PVC stands for Poly Vinyl Chloride and it is a high-strength thermoplastic material. It is critical for industrial products that are imperative for agriculture, infrastructure development, construction and healthcare.
Not only are these sectors the key pillars of our nation’s economic growth, but together, they account for 29% of the economy. For example, without a sufficient supply of PVC, we will not be able to irrigate the agricultural fields and could face a food supply crisis.
However, the PVC industry itself is facing headwinds in India, even though over $ 8 billion of investments have been lined up for increasing the capacity to match the needs of a USD 10 trillion economy that India will have in the next 7-10 years.
Responding to the call
In response to the steady increase in demand for PVC, which is projected to reach a staggering 7 million tonnes by 2030, domestic PVC producers have been committing significant capital to enhance their capacities.
An impressive $8 billion (INR 65,600 crores) of investments is in the pipeline to address the capacity shortage and for India to become self-reliant in this key industry. This series of investments, if they fructify, would fortify the industry and also help create jobs and contribute significantly to the country’s tax revenues.
India’s per-capita consumption of PVC in 2021 stands at 2.4kg per annum, which is considerably low when compared to the US (12.7kg) and China (10.3 kg). This highlights the substantial growth potential of the Indian PVC industry in the years to come and the domestic capacity additions are in line to serve this demand spike.
These consumptions will be driven by key government programs such as housing for all, piped water for all and other key social and hard infrastructure projects.
Assault on the domestic industry
However, amidst these nation-building plans by the domestic players, the Indian PVC industry is grappling with unprecedented assault by imports, majorly from China and the USA.
In 2023, the domestic demand for PVC reached 4 million tonnes, and more than 60% of this demand (2.4 million tonnes) was met by imports leaving the domestic producers serving only 40% of the demand. Clearly, the market dynamics in the industry are skewed, posing a substantial threat to domestic players in accessing the Indian market and serving the demand.
Impact on Potential Investments
In 2019, when the PVC import duty was revised to 10% to address the unnatural drop in the prices of imported PVC. This measure by the government led the domestic PVC players to line up funds for capacity additions. However, in 2022, there was a sudden temporary spike in PVC prices due to supply-chain disruptions caused by COVID-19, which led to the government slashing the import duty to 7.5%.
This reduction in PVC import duty led to a massive surge in PVC imports. This development has put the entire $ 8 billion of investments by domestic players into a question mark. Presently, PVC prices are even lower than the 2019 prices when PVC duty was raised to 10%, without even adjusting for inflation.
India finds itself at the receiving end of a full-blown dumping of PVC, primarily from China, with the intent of destroying the Indian PVC industry. This intentional dumping not only endangers the survival of the existing domestic PVC industry but deters USD 8 billion in investments that are being ploughed into PVC capacity expansion in the country.
If we lose the investments into capacity expansion in PVC or worse, lose our existing PVC capacities, then not only will we lose out on a massive amount of jobs, but also expose 29% of our economy to supply-chain vagaries, which in turn will be driven by the fast-changing geopolitical developments.
If this situation persists, domestic producers will be eventually stretched thin, fighting with reduced market access, import-induced pricing stress and high financial commitments to enhance the production capacity. This concoction of challenges could severely damage the domestic industry, thereby cementing India’s position as the world’s largest PVC importer, with no resolution on the horizon.
Economic Domino Effects
The repercussions of the PVC industry’s struggle extend beyond its own immediate downstream industry. 73% of PVC demand comes from pipes and fitting, highlighting the critical role PVC plays in agriculture and irrigation, with more than 60% of our nation’s population engaged in this sector.
The downstream sectors in which PVC plays a critical role are agriculture (15% of GDP), the construction sector (9% of GDP), the Healthcare sector (3.2%), and the Pharmaceutical sector (2% of GDP). So cumulatively a significant portion of India’s GDP (29%) is dependent on the PVC Industry and its survival.
Any impact on the domestic PVC industry which already suffers from under capacity would eventually lead India to a heightened dependence on PVC imports from China and other countries thereby challenging India’s economic self-sufficiency and supply chain resilience.
The Path Forward
Navigating the complexities of the PVC industry requires a collaborative approach. Apart from Government interventions through Trade remedies, industry stakeholders and policymakers must unite to fortify India’s PVC sector. Safeguarding the industry is not solely about job creation and the fruition of investments but more importantly about the supply chain ramifications in the tertiary industries where PVC plays a key role.
As India marches from $3.73 trillion (2023) to a $10 trillion (FY 2030) economy, the journey might have similar roadblocks. India’s PVC industry today is at the intersection of a growth cycle, an increase in demand, and capacity additions making this situation a make-or-break moment for it. At this juncture, we can’t leave our domestic industries to become sitting ducks while imports from China and the US steadily capture the domestic market under our noses.
Securing our supply chains, especially in strategic sectors like PVC is the need of the hour. Government bodies like the Directorate General of Trade Remedies (DGTR) and the Ministry of Finance should proactively safeguard domestic industries by leveraging trade remedies like Anti-dumping duties and an increase in customs duty to neutralise price undercutting.
This will instill confidence in the domestic players and allow them to contribute towards a self-reliant India thereby helping in turning the $ 10 trillion economy vision into a reality.
This article first appeared in ET Government,