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Five factors driving growth for chemicals in India

India’s chemical industry is poised for growth and investment on the back of domestic demand.

The change in regime in India in May 2014 was accompanied by expectations of bold reforms in economic and industrial policies. While the reforms have been incremental rather than radical, the government has clearly set the economy on a path of high growth. The chemical industry stands to benefit from this growth. The policy changes that specifically impact the sector include the following:

  1. Under the “Make in India” campaign, the government has altered policies to boost investments in the country, including in the chemical industry. The Foreign Direct Investment (FDI) policy allows 100 percent FDI under the automatic route in the chemical sector. In addition, the last 20 items that were reserved for the micro-, small- and medium-scale enterprises sector were de-reserved in April 2015, which opened these areas for greater investment. And upcoming petroleum, chemicals and petrochemicals investment regions and plastic parks will provide state-of-the-art infrastructure for the chemical and petrochemicals sectors.1

  2. The national chemical policy—one of the most awaited in the history of the Indian chemical industry—creates an enabling framework to accelerate manufacturing of chemicals and petrochemicals in order to meet growing internal and external demands as well as reduce dependence on imports. A multifaceted approach, the policy will include establishing the Indian Bureau of Corrosion Control to regulate and prevent huge losses from corrosion (approximately USD$29.6 billion annually2), and a National Chemical Centre to act as a repository of information on the chemical sector.

    Further, the national policy aims to promote research and development with a focus on sustainability and green technologies for consistent, long-term growth. Talks have been initiated with the petroleum industry so that 20 percent of the total feedstock is made available to downstream chemical companies.3 Increasing the number of Central Institutes of Plastics Engineering and Technology (CIPET) will also help promote human resource development and skillsets for the chemical industry.4

  3. Big infrastructural investments in the chemical industry are expected to significantly increase production in the coming years. Many large manufacturers are already investing heavily to set up greenfield or increase capacity. Moreover, several companies are improving the existing infrastructure to increase energy efficiency and cut pollution.

  4. There is a surge in domestic consumption driven by increasing demand for plastic in primary forms and synthetic rubber, as well as fertilizers and nitrogen compounds. Basic chemical domestic production growth is encouraged by India’s general economic growth and burgeoning consumerism, since the basic chemical industry is intertwined with many other industries related to consumer products.

  5. A global shift is being observed toward Asia as the world’s chemical manufacturing hub. India enjoys low-cost manufacturing capabilities by virtue of low-cost labor and geographic proximity with the Middle East, one of the world’s key sources of hydrocarbons, coupled with refining capacity in India. This further reduces the cost of production and brings economies of scale. With the government investing to plug the infrastructure gaps in the country, India could emerge as the next manufacturing hub for the chemical industry.

In conclusion, the chemical industry is poised for a phase of growth and investment on the back of domestic demand. The coming years will provide an opportunity for domestic industry players to gain scale and consolidate—and for international players to set up a robust manufacturing base.

Footnotes:
1Make in India, http://www.makeinindia.com/sector/chemicals.
2Converted INR 2 lakh crore using May 20, 2016 conversion rate on XE.com.
3"Plan for Growth of the Indian Chemicals Industry Revealed," Confederation of Indian Industry (CII), September 16, 2015, http://www.cii.in/
4“Government will soon come out with a National Chemical Policy, says the Chemicals and Fertilizers Minister,” Press Information Bureau, Government of India, Ministry of Chemicals and Fertilizers, December 4, 2015, http://pib.nic.in/newsite/PrintRelease.aspx?relid=132490.