Importance of India Chemical Industry: Growth and Opportunity
The chemical industry stands as a cornerstone of modern society, encompassing a vast array of companies engaged in the production, processing, and distribution of chemicals and chemical products. From manufacturing and agriculture to healthcare and construction, these chemicals find applications in diverse sectors, underpinning the functioning of our economy. Indian Chemical Industries play important roles for Economy growth, Employment creation and Export promotion.
Indian Chemical Industry Size and Growth
The Indian chemicals sector has emerged as a rapidly advancing industry on the global stage, securing its position as the sixth-largest chemical producer with a market size of $178 billion in 2021. Projections indicate a promising future for the sector, with an anticipated Compound Annual Growth Rate (CAGR) of 11–12%, expected to reach a value of $290-310 billion by 2027.
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Categorized by function and usage, the chemical sector encompasses four primary segments: Pharmaceuticals, Agrochemicals, Industrial Chemicals (including solvents, lubricants, and catalysts), and Specialty Chemicals, which offer unique products like specialty polymers, coatings, and electronic chemicals.
Among these segments, Specialty Chemicals are poised for accelerated growth, with estimates suggesting a value of approximately $50 billion by 2025.
FDI in India’s Chemical Industry and Importance of Chemical Industry to Indian Economy
100% FDI allowed under automatic route in Chemical industry.
The market size of Chemicals & Petrochemicals sector in India is around $215 Bn; expected to grow to $300 Bn by 2025. Reason why Importance of India Chemical Industry: Growth and Opportunity
- Exports of Chemicals and Chemical products (excluding pharmaceutical products and fertilizers) contributed 11.7% of total export in the year 2021-22 compared to 12.9% in the year 2020-21. It contributed 10.8% of total export in the year 2022-23 (up to September 2022).
- CAGR in Export of total Chemicals and Chemical products (excluding pharmaceutical & fertilizer products) during the period 2017-18 to 2021-22 was 13.86% while CAGR of total national export was 12.62%.
- The compounded average growth rate(CAGR) during the period 2017-18 to 2021-22 was 4.4% for manufactured product based on WPI while it was 4.4% for Chemicals and Chemical Products.
- The Index of Industrial Production of Chemical & Chemical products achieved record to 137.2 in July, 2022 as against the lowest value of 109.1 recorded in May 2021.
- The quantum of production of Major Chemicals decreased to 53.54 Lakh Tonnes during 2023-24 (up to August 2023) as compared to 54.32 Lakh Tonnes during the corresponding period of the previous year.
- The quantum of production of certain Petrochemicals such as Synthetic Detergent
Intermediates was 34.07 Lakh Tonnes in 2023-24 (up to August 2023) - Production of Organic Chemicals has increased (Up to August 2023) as compared to the corresponding period of the previous year, recording an increase of 4.52%.
- The quantum of production of Major Petrochemicals increased (up to August 2023) compared to corresponding period of previous year recording an increase of 6.08%.
Specialty chemicals, primarily utilized in industrial applications with additional roles in the agrochemical and food industries, are characterized by their specialized attributes and tailored performance advantages, often commanding higher price points compared to commodity chemicals. With extensive applications across diverse industries, Specialty Chemicals represent the most lucrative and rapidly expanding segment within the Indian chemical sector, driven by both domestic and international demand.
In contrast, base chemicals, serving as raw materials, possess commodity properties, emphasizing the importance of achieving scale and monopolizing key ingredients to establish and sustain a competitive edge.
This strategic dominance enables greater pricing flexibility, often surpassing prevailing market rates, and ensures profitability by controlling production costs.
While Chinese players previously leveraged this approach with government support and lax environmental regulations, escalating environmental concerns led to stricter regulations, prompting a slowdown in industrial activities and a shift in the global chemical supply chain.
This shift has presented India with opportunities to attract investments, positioning itself as a favorable destination for chemical manufacturing through initiatives like the “China+1” strategy.
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The COVID-19 pandemic further accelerated the trend of diversifying sourcing locations beyond China, with companies exploring alternative manufacturing hubs to mitigate supply chain risks. India’s appeal as a “China+1” destination stems from factors such as low labor costs, a skilled workforce, and proximity to growing Southeast Asian markets.
Additionally, the “Europe+1” strategy is gaining traction, with the European Union considering relocating some chemical manufacturing to India due to lower manufacturing costs and stringent regulations in Europe.
Importance of India Chemical Industry, will play instrumental role in job creation and promoting exports, PLI scheme will further bring boost to this sector.
