Analysis: Chemical sector in India grows by leaps and bounds

The global chemicals market was valued at ~US$5,027 billion, with China accounting for a substantial market share (39%), followed by the European Union (15%) and the US (13%). In CY20, India accounted for ~4% market share in the global chemicals market. According to the F&S Report, the global chemicals market is expected to grow at a CAGR of 6.2% CAGR from US$5,027 billion in CY20 to US$6,780 billion by CY25.

From 2020-25, the Asia Pacific (APAC) chemicals market is expected to grow at the fastest rate of 7-8% while the chemicals markets in Western Europe, North America, and Japan are expected to grow at a slower rate of 3-4% since they are relatively mature.

Global chemical market 2015, 2020 and 2025F

Specialty chemicals are chemical products that help in providing a variety of effects to various industries that they cater to such as textile, ink additives, construction, oil & gas, cosmetics, and food.

Specialty chemicals can be single-chemical formulations or entities whose composition greatly influences the performance of the customers’ products. These chemicals are used based on their function and performance.

Continuous R&D in this market has facilitated the development of products with optimum and advanced features. This is one of the major factors that drive the growth of this market.

Increase in R&D

Indian chemicals industry was valued at US$186 billion, representing ~4% of the value of the global chemicals industry. The value of the Indian chemicals industry is expected to grow at a CAGR of 12.2% from US$186 billion in 2020 to US$330 billion in 2025. In FY20, the Indian chemical industry contributed ~6.6% of the national GDP and accounted for 15-17% of value of the India’s manufacturing sector.

Make in India initiative

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 chain. Government 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).

Low cost, availability of skilled labour in India to support speciality chemical exports China’s minimum wages, which ranged from ~US$140 to US$346 in calendar year 2019, are set at the provincial level. India’s minimum wages similarly vary across states and range from ~US$66 to US$202 in CY19.

Increase in demand for Chemicals & Petrochemicals

India is poised to emerge as a global chemical and petrochemical manufacturing hub. The government of India has launched flagship programs such as Make in India and the Aatmanirbhar Bharat Abhiyan to provide much-needed support to this sector and create a facilitative environment to attract further investments.

Production Linked Incentive Scheme for the manufacturing sector- the objective of the PLI Scheme

1. Competitive & efficient domestic manufacturing.
2. Attract investment in core sectors & cutting-edge technologies.
3. Make India part of the global supply chains.
4. Enable economies of scale and exports.

Growth in speciality chemicals

Specialty chemicals is US $800 billion and is growing with a CAGR of 5.7 percent over the last 5 years. This is expected to grow, and the momentum will continue till it becomes a US $1 trillion industry by 2025. Specialty chemicals industry is becoming an integral part of the larger global chemical sector.

The chemical sector is presently US $4 trillion, and it was growing at a CAGR of 4 percent from 2004 to 2018 and will go from strength to strength in future. The global chemical sector is dominated by China with a market share of about 35 percent and is followed by Europe and the United States with 20 percent and 15 percent respectively. So, India has a long way to go.

Impact and benefits of the scheme

The minimum production in the country as the outcome of the PLI scheme stands to be around USD 56 billion in the next 5 years.

Cashback and incentives between 2% and 20% of the incremental sales revenue (over the base year) and incremental exports revenue depending on the sector.Potential to create ~14 million man-months’ worth of jobs directly from 2021-22.

Government initiatives

The specialty chemicals segment has grown at an impressive rate of approximately 11.7% in terms of value in the last five years. The COVID-19 pandemic had a positive impact on the demand for flavours and fragrances, personal care chemicals, nutraceutical ingredients, and surfactants because of increased consumption of hygiene products, packaged foods, energy drinks and nutraceuticals. The segment has immense growth potential due to the increasing demand from construction, automotive, packaging, water treatment, home and personal care, food processing, nutraceuticals, and other demand-driven sectors.

In addition to the industry’s historic growth trajectory, the Government has taken progressive steps, such as the economic stimulus package, Production Linked Incentive (PLI) Scheme, tax and labor reforms, setting up of the National Infrastructure Pipeline (NIP) and various chemical industry-specific policies and schemes, including its public procurement policy, mandatory BIS standards, skill development programs and renewal of the PCPIR policy.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

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