Indian Inorganic Chemical Industry: A Profitability Study

Abstract

This study investigates the impact of operational and performance variables on the profitability (measured by Return on Assets) of the Indian manufacturing industry, focusing on the chemical industry. Utilizing financial data from 1988 to 2020, primarily due to challenges such as poor scale economies, balance of payments crises, and slow technology diffusion. Industry witnessed a significant structural transformation post-2013, becoming a net exporter of inorganic chemicals, albeit with reduced sales growth. The analysis explores relationships between R&D intensity (RDI), financial development (FD), fixed asset turnover (FAT), and cash conversion cycle (CCC). Employing cointegration techniques and Granger causality tests, results indicate that RDI and FAT negatively affect ROA in the short and long term. A ten-day increase in CCC raises ROA by approximately 0.06%. Studies indicate that higher investments in R&D and fixed assets, alongside improved sales realization, can positively impact profitability. The analysis highlights the need for effective managerial practices and intellectual property assets to enhance the industry's financial performance. The study underscores the significance of efficient working capital management and the strategic allocation of fixed assets in enhancing firm profitability. The findings provide valuable insights for policymakers and corporate managers aiming to optimize financial performance through targeted operational strategies.