Government Initiatives to boost Growth for Indian Chemical Sector

India's Growth Trajectory in Chemical Sector supported by Government Initiatives

Twitter Handle: @shuchi_nahar

The global chemicals market is valued at around USD 4,738 billion and is expected to grow at 6.2% CAGR reaching USD 6,400 billion by 2024. The Indian chemicals market is valued at USD 166 billion (~4% share in the global chemical industry) and it is expected to reach ~USD 280-300 Bn in the next 5 years, with an anticipated growth of ~12% CAGR. The specialty chemical industry forms ~47% of the domestic chemical market, which is expected to grow at a CAGR of around 11-12% over the same period.

Stronger growth lead by Government Initiatives

India’s growth story was largely positive based on the strength of domestic absorption and the economy was registering a steady pace of economic growth pre-Covid. Moreover, its other macroeconomic parameters like inflation, fiscal deficit and current account balance had exhibited distinct signs of improvement. Though the pandemic has led to a short-term slowdown of the economy, the medium-long term fundamentals are sound & India is expected to witness the revival of its economy soon.

Aatmanirbhar Bharat Abhiyan

Prime Minister Narendra Modi on May 12, 2020 announced the Aatmanirbhar Bharat Abhiyan which combined relief, policy reforms and fiscal and monetary measures to help businesses and individuals to cope with the situation created by the pandemic and helps transform India into a self-reliant economy. The government seized the crisis to push forward long-pending industrial & other economic reforms in the least politically resistant atmosphere.

• This campaign is especially expected to benefit the Specialty chemicals sector, with several players hoping to position themselves as an alternative to China as the coronavirus crisis prompts companies to diversify their supply chains.

• Govt. announced a production linked incentive (PLI) scheme for the promotion and manufacturing of pharmaceutical raw materials in India. The government’s move is aimed to boost domestic manufacturing and cut dependence on imports of critical Active Pharmaceutical Ingredients (APIs).

Further, the government has also decided to develop three mega bulk drug parks in partnership with states. These schemes will likely appeal more to the smaller players and should foster more investments. The government is soon planning to roll out such a scheme for the chemicals sector as well.

• The government is also in the process of launching a production-linked incentive (PLI) for the chemical sector to increase self-reliance in the country. This move is to reduce the country’s dependency on imports of basic chemicals. The PLI scheme will help the sector to identify import-dependent chemicals and work towards producing them within the country.

• Specialty chemical companies will look at import substitution along with export opportunities to further drive their business. Historically, domestic consumption has been the driving metric for Specialty chemicals manufacturing in India, with exports playing a much smaller part – owing to reduced raw material availability, higher utility tariffs, and a stricter regulatory structure. However, owing to the current geopolitical issues, India’s focus on being a manufacturing hub for exports of specialty chemicals will increase, subsequently increasing the share of exports in the overall market.

Global chemicals market, 2014, 2019, and 2024F (USD 4100 Bn, USD 4738 Bn, and USD 6400 Bn)

Commodity Chemicals

The commodity chemicals market includes companies that manufacture basic chemicals in large volumes. These include plastics, synthetic fibers, films, certain paints and pigments, explosives, and petrochemicals. There is limited product differentiation within the sector; products are sold for their composition.

The commodities market is highly fragmented. The end-user markets include other basic chemicals, specialties, and other chemical products; manufactured goods such as textiles, automobiles, appliances, and furniture; and pulp and paper processing, oil refining, aluminum processing, and other manufacturing processes. Markets also include some non-manufacturing industries. The sector is presently valued at ~USD 3,700 Bn and is expected to grow at 5%-6% globally in the next five years.

Specialty Chemicals

The specialty chemicals market is characterized by high value-added, low volume chemical production. These chemicals are used in a wide variety of products, including fine chemicals, additives, advanced polymers, adhesives, sealants and specialty paints, pigments, and coatings. The specialty market is extremely fragmented. The consolidation of companies has been a major trend and is expected to continue. Similar to the commodity sector, the specialty sector is affected by the high costs of energy and feedstock.

Growth Drivers across the Industries

The COVID-19 pandemic has had an unprecedented impact on the global economy. Chemical companies in North America and Europe have specifically started focusing on operational efficiency, asset optimization, and cost management. On a short-term basis, most companies are considering implementing a series of targeted, strategic initiatives across major functional areas such as R&D and technology. 

Companies are also keen on addressing long-term opportunities like investing in innovation, emerging applications, adopting new business models that generate sustained growth, analyzing temporary vs. permanent customer buying behavior patterns across geographies.

The industry is expected to see the following trends in the next 2-5 years - 

• Companies will try and shift their focus toward new value streams and growing end markets, such as health care and electronics

• Most governments have announced policy proposals related to regulation, trade, and sustainability which could prove beneficial in shifting the dependence of the industry from China

• Chemical companies are now experiencing significant changes in the way they operate and serve their customers by leveraging on remote and digital sales channels.

Growth from various Industries are as follows:

Owing to shutdowns in China and lack of capacity additions in other developed countries, India stands to benefit in the export market. Also supporting the growth in India is its ability to manufacture at a lower price compared with its western counterparts. Moreover, the specialty chemicals consumption in the country is low compared with the global average. The increasing availability of basic chemicals is likely to support investments in the specialty chemicals segment further.

The “Make in India” campaign is also expected to add impetus to the emergence of India as a manufacturing hub for the chemicals industry in the medium term. Through incentives, subsidies and grants under this campaign, Indian companies could gain further ground as companies would want to reduce dependence on China after the COVID-19 pandemic and shift their supply chains. 

The decline in raw materials prices could also help the margins and reduce the working capital needs. However, input costs are a pass-through for most companies and benefits could be limited. Overall, the chemicals industry is likely to continue to perform well in the near to medium term and is expected to capitalize on the Make in India benefits to assume a leadership position in the Global markets.

List of Chemical Companies:

1. https://myweekendspot.blogspot.com/2021/03/neogen-chemicals-ltd-agro-chemical.html

2. https://myweekendspot.blogspot.com/2021/02/dmcc-dharamsi-morarji-chemical-company.html

3. https://myweekendspot.blogspot.com/2021/02/tata-chemicals-huge-opportunities-ahead.html

4. https://myweekendspot.blogspot.com/2021/03/deepak-nitrite-leading-indian-producer.html

Sources: 

 Indian Chemical sector - Presentation

Frost & Sullivan Indian Chemical Report

KPMG Report on Speciality Chemicals

PWC Speciality Chemicals

Avendus Speciality Chemical

IBEF

Twitter Handle: @shuchi_nahar

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