The chemical industry plays a pivotal role in the economical growth of any region. It helps in meeting basic needs and improving quality of life as well.
Globally, India is the fourth-largest producer of agrochemicals after the United States, Japan and China. The country’s chemicals industry is de-licensed, except for few hazardous chemicals. As per reports of IBEF, India has reported ~16% of the world production of dyestuffs and dye intermediates. Indian colorants industry has emerged as a key player with a global market share of ~15%. India occupies a strong position in exports and imports of chemicals (excluding pharmaceuticals) at a global level and ranks 14th in exports and 8th in imports at global level.
India’s out-performance in chemical industry has risen expectations for the sustained and continual growth of chemical industry in India. The domestic chemicals sector’s small and medium enterprises are expected to showcase 18-23% revenue growth in FY22, owing to an improvement in domestic demand.
India’s proximity to the Middle East, the main source of petrochemicals, is an added advantage for the country and is beneficial for the economy.
The approaching years are expected to reach US$ 304 billion by 2025 registering a CAGR of 9.3%. The demand for chemicals is expected to expand by 9% per annum by 2025. The chemical industry is expected to contribute US$ 300 billion to India’s GDP by 2025. As per reports, an investment of Rs. 8 lakh crore (US$ 107.38 billion) is estimated in the Indian chemicals and petrochemicals sector by 2025.The specialty chemicals constitute 22% of the total chemicals and petrochemicals market in India.
As per CRISIL report, Indian manufacturers have recorded a CAGR of 11% in revenue between FY15 and FY21, increasing India’s share in the global specialty chemicals market to 4% from 3%.The improvement in domestic demand and robust exports will accelerate the rise by 50% YoY in the CAPEX of specialty chemicals manufacturers in FY22 to Rs. 6,000-6,200 crore (US$ 815-842 million). Revenue growth was likely to be 19-20% YoY in FY22, up from 9-10% in FY21. The growth boosters being- recovery in domestic demand and higher realisations due to rising crude oil prices and better exports.
Looking at the way forward, the market reports are pointing at various opportunities that the Indian chemical industry has, considering the supply chain disruption in China and trade conflict among the US, Europe and China. The report believes the anti-pollution measures in China will create opportunities for the Indian chemical industry in specific segments.
Besides it, the additional support from GOI, in terms of fiscal incentives, such as tax breaks and special incentives through PCPIRs or SEZs to encourage downstream units will enhance production and development of the industry. Government policies such as the dedicated integrated manufacturing hubs under Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) policy to attract an investment of Rs. 20 lakh crore (US$ 276.46 billion) by 2035 is expected to boost the industry. The government further plans to introduce production-linked incentive (PLI) scheme to promote domestic manufacturing of agrochemicals. Under the Union Budget 2022-23 the government allocated Rs. 209 crores (US$ 27.43 million) to the Department of Chemicals and Petrochemicals.
As per analysis by Mckinsey of India’s chemical industry, it says India’s exports and imports, coupled with a review of opportunities emerging from global trends, points at investible themes such as, building self-sufficiency in petrochemicals to plug the domestic supply shortfall of 52 percent (by volume) in petrochemical intermediates. Secondly, ramping up exports in select areas, such as specialty chemicals, to obtain a larger share of global value.
The key trends, as per reports, include focused growth and global scale for Indian chemical companies endeavoring to build and maintain their competitive advantage. Another trend of Digital technology has emerged as an important tool for efficiency and productivity. In current scenario, digital technology is the key to scaling up efficiency and productivity. Many players are focussing on investing in digital and analytics (DnA) capabilities as they quest for flexibility, agility and productivity.
The chemical industry contributes significantly to India’s trade volume. Investing in emerging trends and opportunities in the near term could make a positive difference to Indian chemical companies.
The other noteworthy trends that would shape the future of the industry include-
Sustainability And Innovation —Chemical producers need to focus on the mission 2030 goals. This would include efforts to harness material or product alternatives on a larger scale. And to achieve desired outcomes and results will likely require additional capabilities and approaches.
Growing Consumption: India’s current per capita consumption of chemicals is 1/10th of global average. Various market reports suggests indicates rise in the domestic demand from end-use industries that will finally, drive consumption.
Need For Transformation: Entering into 2023, the chemical industry is in a strong financial position. As per market analysis, the year ahead could be a turning point when companies prioritise the long-term viability of product portfolios in terms of sustainability to move towards asset-oriented deal-making. The report expects the trend will take longer to scale, as the uncertainty around feedstock prices, energy demand, supply chain, and end-market demand, will be the deciding factors that would affect the decision of the strategic buyers.
Re-evaluating Supply-chain: In the approaching years, re-evaluation of supply-chain structures will be crucial for producers to meet the scale of changes required for coming years. Overall, companies need to consider strategies significantly different than those of the past three decades.
Digital Implementation: Digitalisation is playing a pivotal role in decision-making of chemical producers. Producers may increasingly use digital technologies to empower materials innovation and assist low-cost formulations by evaluating, optimizing, and assimilating ingredient recipes and domain knowledge.
Conclusion-
The industry is expected to be a key component of a strong domestic manufacturing sector in building India a $5 trillion economy.
As per market experts, to bring about structural changes in the working of domestic chemical industry, future investments should not only focus on transportation of fuels such as petrol and diesel, but also on crude-to-chemicals complexes, There should also be plans to set up refineries to cater to the production of chemicals.
For a strategic growth it is vital for the Industry players and associations to actively work with the government to address sector-level challenges. Market experts suggest supportive government measures that would include an integrated petrochemical and specialty-chemical master plan and fast-tracking the implementation of Petroleum, Chemical and Petrochemical Investment Regions (PCPIRs). The government could continue to work towards implementing policies for the ease of doing business in India by streamlining regulations and processes. Furthermore, government can issue clear directives on future regulatory requirements. Introduction of sector-specific skill-development programs and a technology-upgrade fund could provide impetus to the skill levels and innovation across the industry.
Finally, it can be said that the Indian chemical industry could capture and capitalize on opportunities that would emerge from the changing trends in the near future. The strategies and actions drawn or taken by the private players and the industry would contribute in shaping the future of the sector in India impact the country’s trade performance. Thus, for successful outcome it is imperative for the private players and the government to collaborate to contribute to the growth story of Indian chemical industry.
