India is one of the rapid growing economies in the world and has a thriving chemical industry, encompassing a wide range of products, including petrochemicals, pharmaceuticals, fertilizers, dyes, paints, and specialty chemicals. This surge has been fuelled by a strong domestic demand driving increased demand for chemicals in various sectors such as construction, infrastructure, automotive, consumer goods, and healthcare, therefore, providing a win-win situation for chemical manufacturers.
India is deliberately shifting its focus towards specialty chemicals, which promises higher margins and multiple end-use applications. It has a strong presence in areas such as performance chemicals, pharmaceuticals, dyes, pigments, agrochemicals, where specialty chemicals play an extremely pivotal role.
India’s current trade deficit, between $9 billion and $10 billion, is expected to inflate to $42 billion by 2040.
Exports are expected to grow at a CAGR of 9.5–10% to nearly $145 billion by 2040. Imports, on the other hand, will certainly grow at a CAGR of 9–9.5% to $185 billion.
India will continue to be dependent on imports for its chemical requirements due to its rising domestic demand. Specialty is expected to be a net exporter among the three major segments - inorganic, petrochemicals and specialty. Exports are expected to grow from about $2 billion in 2021 to $21 billion by 2040. The petrochemical and inorganic segments will be largely import dependent due to limited cracker infrastructure and dearth of key feedstock and minerals.
Opportunities for growth
The Indian chemical industry is a hub of enormous opportunities to build at-scale businesses across specialty, inorganic and petrochemical segments. A right balance between market attractiveness and cost competitiveness will help you identify these opportunities. While market attractiveness is a composite of current market size, expected CAGR, and macrotrends, cost competitiveness is typically a function of feedstock availability, trade balance, and scope of value addition through process or tech innovation.
Specialty chemicals - The specialty segment is the most powerful pillar of India’s chemicals sector with a net trade surplus. 16 specialty chemicals subsegments perform extremely well on crucial parameters of market attractiveness and cost competitiveness. The two subsegments are below:
Agrochemicals - Agrochemicals is presently a $5.5 billion market, growing at a CAGR of 8.3%, expected to count for nearly 40% of India’s overall chemicals exports.
Food and feed ingredients – This subsegment constituting flavors and fragrances, food and feed additives, and nutraceuticals is a $3 billion market in India, growing at a CAGR of roughly 9%.
The changing geopolitical scenarios have forced many countries to focus more on localised supply chains and domestic self – reliance. Nevertheless, benchmarking India's manufacturing competitiveness suggests that India has a strong starting point as compared to other key global chemical clusters enabling India to become the next chemicals manufacturing hub. According to McKinsey, global benchmarking against six chemical clusters further highlights both India's strengths and scope of improvement as a global manufacturing hub. Indian chemical companies face hindrance when it comes to feedstock availability due to restricted capacity and access to key minerals. India’s growing domestic chemical consumption is set to grow at a CAGR of 9 – 10% in the years to come owing to a subsequent increase in disposable incomes, conducive demographic dividend, increasing global preference for bio-friendly substitutes, and diversification of global chemical supply chains. The specialty chemicals segment is the primary driver of this massive growth with a potential to account for more than USD 20 billion to India's net exports in the coming years.
The way forward
India’s chemical sector is touted as a consistent value creator and remains an attractive hub of opportunities for investors with stocks of many specialty companies increasing manifold over the years. Growing end-use applications augmented by rising domestic consumption, huge growth in exports, and increasing import substitutions are anticipated to fuel the growth of this ever-booming sector. The superlative performance of the specialty chemical sector is encouraging manufacturers to maximize their production capacity to match the growing demand for its products. Moreover, tax breaks and special incentives through Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) policies or SEZs will uplift downstream units that will upgrade the development of the industry.
The rapid growth of the Indian chemical industry is assured and will continue to rise as end user industries evolve. The specialty chemicals sector is rewriting India’s future economic landscape with a new vigour towards its products and solutions and will need to further ramp up to meet the growing demand.