The Indian chemical industry contributes around 7% of the GDP and makes India 6th largest chemical producer in the world and 3rd in Asia. Over the last few years, India has shown exceptional growth, fuelled by consistent revenue and high margins. According to the Times of India report, the Indian chemical industry is expected to reach $304 billion by 2025, growing at a CAGR of 9.3%. With the vision of the central government to make India the world’s third-largest economy, the chemical manufacturing sector will play a vital role in the next few years.
As per the data shared by McKinsey & Company, India’s chemical manufacturing will triple its global market share by 2040. The growth of this sector in the coming years will be driven by various factors, which include domestic consumption, which might increase by 20%, and demand in the domestic regions, which might increase from $850 billion to $1000 billion by 2040.
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India to Widen Its Trade Deficit
In order to become the world’s largest chemical manufacturing hub, India strategically works towards widening its trade deficit. India’s current trade deficit stands at $10 billion and includes three main segments: inorganic, petrochemicals, and specialty. McKinsey & Company predicted that India’s trade deficit is expected to increase to $42 billion by 2040. The noticeable segment of chemicals that helps India widen its exports might be specialty chemicals, whose net exports will surge by 10X from $2 billion in 2021 to $21 billion by 2040.
The above graph shows the expected growth of India’s chemical manufacturing sector in imports and exports across different segments. It is clear that the next decade will accelerate the growth of this sector and contribute to India’s strong position and high global market share in chemical manufacturing.
A Rising Competition in Chemical Manufacturing
Ahead of the stellar growth and favourable market conditions, India is expected to face stiff competition from the global chemical clusters, which include Saudi Arabia, China, Indonesia, Vietnam, Germany, and South Korea. However, India is expected to get support from the Indian government in the coming years. Finance Minister Nirmala Sitharaman shows the government’s consideration of the Production Linked Incentive Scheme (PLI) for the chemicals and petrochemicals industry. Under this scheme, the government will offer incentives for incremental sales of products manufactured in domestic units.
At the FICCI Global Chemicals & Petrochemicals Manufacturing Hubs India Summit, Finance Minister, Nirmala Sitharaman said, “We are in favour of making India a chemical manufacturing hub and will consider PLI to focus on green growth.”
India has an extra edge over its competitors in various aspects, which include material costs, the supply chain, hourly wages, and the domestic availability of petrochemicals. In addition, the country also has highly skilled leaders in the chemicals and petrochemicals sectors who can strategically overcome challenges and take advantage of new opportunities.
India’s Opportunities in the Chemical Sector
Emerging opportunities in the chemical sector extensively upgrade India’s vision to target the ever-evolving needs and establish itself as an industry leader in the global chemical market. Under the policy of the Petroleum Chemicals and Petrochemical Investment Region (PCPIR), India aims to get an investment of $284 billion (Rs 20 Lakh crore) by 2035. This policy is designed in a cluster strategic way to boost the chemical sector on a large scale.
As per the data shared by the Department of Chemicals & Petrochemicals, under the PCPIR policy, the government aims to create 33.83 new jobs. In the next two decades, 80% of the exports would originate from agrochemicals, dyes & pigments, and food additive chemicals. In total, 16 specialty chemical segments will perform positively in terms of cost-effectiveness and market demand.
Inorganic Chemicals: An inorganic chemicals segment has high demand and is most opportunistic for India. Its various sub-segments, like Fluorine, Sodium, and caustic, are expected to grow at a CAGR of 10% by 2040.
Speciality Chemicals: With a surplus net trade, specialty chemicals segments will act as a pillar in India’s global growth in the global chemical industry. The net export from this segment is expected to increase to $21 billion by 2040.
Petrochemicals: In this segment, the future opportunities for India will depend on the scaling and vertical integration of the chemical companies. The petrochemicals segment is expected to grow at a 6-8% CAGR and reach $13-15 billion by 2040.
India- A Future Driving Force In The Global Chemical Market
The positive outlook of the chemical industry in India will present a bunch of opportunities for growth and global dominance. A predicted growth rate and other metrics are in favour of India, which drives it towards becoming the largest chemical manufacturing hub in the next two decades. Growing local demand for chemicals and expanded exports also bring opportunities for chemicals and petrochemical companies to act as pillars in this journey. The role of India’s top petroleum and chemical leader and central government will be huge in determining the country’s growth in this sector.
