Chemical Supply Chains Will Undergo A Major Transformation Post Covid-19

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The coronavirus pandemic has exacerbated an unprecedented shift in the choices of the industrialists after a significant halt in the supply chains across the Northern hemisphere. Battered by the lack of reliability and transparency issues, economies are rerouting their supply chains after China became the origin of the threatening pandemic that the world is trying to get rid of. Although, China has become quite successful in defeating the contagion after struggling for almost three months, analysts assume that the outbreak high lightened the need of the hour for the world to contract their reliance for the essential raw materials and Active Pharmaceutical Intermediates to a specific region and protect it from other vulnerabilities. With its severe impact on global supply chains, the major economies which had been making good money through trade flows, are now only left with containers stranded in the wrong locations as there is an indefinite delay in the overseas shipments.  

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Impact on Indian Supply Chains
·         Growth in Longer Term

The European Fine Chemicals Group, an association of API manufacturers in Europe EFCG estimates that more than 80% of chemicals used to make drugs sold in Europe are sourced from China and India. The group has been keeping a close eye such a heavy reliance for these essential raw materials since 2017, when an environmental crackdown by the Chinese government led to a wave of plant closures. Loss of China as a reliable source of raw materials which holds almost 25 per cent share would mean a greater share of India in the market, which currently stands at 3 per cent. Better research and development initiatives in chemistry and engineering will fetch India competitive advantage in the years to come. However, it solely depends on the country’s chemical players how they tap this value-creating opportunity and function to shape the future of the industry in India to push country’s trade performance.

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Post the outbreak, the Indian government is under a constant thought about fostering pharmaceutical infrastructure developments, granting environmental clearance, and providing tax exemptions and subsidies to support the local manufacturing of drugs. Government of India has decided to promote domestic production of key Starting Materials (KSMs) or Intermediates and Active Pharmaceutical Ingredients (APIs) in the country. The government is out with a scheme which will promote Bulk Drug Parks and involve the financial investment of INR 3,000 crore in the next five years.



·         Supply chain vulnerabilities

The disruptions in supply chains existed much before the imposition of the lockdowns as the spread of Covid-19 across the world gave a major blow to the trade flows as soon as the virus originated in the Wuhan province of China. India relies heavily on China for raw materials. Certain Indian industries like pharmaceuticals (China satisfies almost 70 per cent of country’s active pharmaceutical ingredients (API) demand ), automobiles (China exports about 10-30 per cent of the raw materials and base components to India), chemicals and textiles are heavily dependent on China. This overdependency has become a serious issue for national health security, prompting the Indian government to set up a special taskforce to review the internal API sector as it senses possible shortages of volumes in the Indian market further leading to problems like skyrocketing import prices.

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Source: ChemAnalyst

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