With Asia expected to drive 70% of incremental specialty chemicals demand until FY25, primarily due to China’s disproportionate growth, India is now emerging as a major player in the chemical industry, showing great promise in terms of production capacity, product quality, and return on investment. And in this section, we delve into the factors that have propelled India to the forefront of the global chemicals market, as well as its journey and future prospects.
According to a McKinsey & Company study conducted last year, the Indian specialty chemicals market is expected to grow to $40 billion by 2025, up from $28 billion in 2018. This makes it the fastest growing chemicals market in the world.
The Indian Performance So Far
The chemical industry in India is extremely diverse and can be broadly classified as bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers, and fertilisers. After the United States, Japan, and China, India is the world’s fourth largest producer of agrochemicals. India produces 16 percent of the world’s dyestuffs and dye intermediates. With a global market share of 15%, the Indian colourants industry has emerged as a key player.
Here’s a look at India’s growth figures, which were last recorded in June 2021 by the India Brand Equity Foundation, for a better understanding.
Possibilities Galore for India
The McKinsey & Company report that we talked about above further states that the specialty chemicals market was expected to shrink by 5–8 percent in FY19 due to the Covid-19 crisis. However, given the market’s strong fundamentals, it is expected to recover between 2021 and 2022. Overall, there may be a 1–2-year delay, with the market expected to grow by $110–130 billion between FY18–25.
The Indian specialty chemicals is actually one of the oldest sectors. Over the last five years, there has been a gradual shift in the underlying business, driven by China tightening environmental compliance norms and purchasing managers becoming uneasy with extremely high reliance on a single source. Furthermore, the escalating trade tensions between the United States and China became a rallying cry for users to look elsewhere. This is where India’s chemical industry comes into play.
However, according to an Economic Times analysis, the industry will need more than $10 billion in external debt and equity to fund the incremental capex and working capital requirements. The fund requirement could be even higher as companies seek backward integration and set up units on a much larger scale than in the past.
Great opportunities to invest
Strategic investors, led by Japan, Korea, and Thailand, are showing interest in Indian companies as they seek to diversify supply chains away from China. This was evident in the $414 million acquisition of JB Chemicals and Pharmaceuticals Ltd. by KKR and the $210 million acquisition of SeQuent Scientific Ltd. by Carlyle.
Not only are such mergers and acquisitions taking place, but large-scale domestic and international investments are also taking place in the industry as a result of India’s great promise. Ultramarine & Pigments successfully commissioned the Sulphonation plant in Nellore, Andhra Pradesh, to manufacture surfactants and specialty chemicals in January 2020.
Grasim Industries signed a binding agreement with Lubrizol Advanced Materials (a specialty chemical company) in October 2020 to manufacture and supply chlorinated polyvinyl chloride (CPVC) resin in Gujarat.
Bhoramdev Cooperative Sugar Factory Kawardha in Chhattisgarh Distillery’s subsidiary NKJ Biofuel signed a memorandum of understanding (MoU) in December 2020 for the country’s first ethanol plant to be built in the state through a public-private partnership (PPP).
The Road Ahead
The Indian government sees the chemical industry as a key growth driver, with the chemical sector expected to account for 25% of the manufacturing sector’s GDP by 2025. The government allocated Rs. 233.14 crore (US$ 32.2 million) to the Department of Chemicals and Petrochemicals in the Union Budget 2021-22.
The benefits provided to the industry include:
A single point of contact for central and state-level approvals.
Income tax exemption of 100 percent on export income for SEZ units for the first five years, 50 percent for the next five years, and 50 percent of ploughed-back export profit for the next five years.
Under the automatic route, 100 percent FDI is permitted in the chemicals sector, with a few exceptions, including hazardous chemicals.
Plans to implement a production-link incentive system with 10-20% output incentives for the agrochemical sector, as well as to build an end-to-end manufacturing ecosystem through cluster growth.
With such a positive outlook even after a devastating pandemic, it is clear that India is soon going to be an industry leader in Specialty Chemicals not just in Asia, but on a global scale too.
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