background paper – chemicals

Chemicals

2© Confederation of Indian Industry

Content

Sectoral Overview The Potential Existing Enablers Major Challenges faced


Sectoral Snapshot

6th Largest Globallyby production

> 2% Sector’s

Contribution to GDP

100% FDI allowed under

automatic route

~15% Sector’s

Contribution to Manufacturing GDP

~6.57%* of total FDI captured by

the sector during April -Dec 2015

~5+ Millionemployment generated

by sector

*FDI Factsheet, DIPP


Sectoral Overview

India’s chemical industry was valued at USD 144 Billion in 2015 and is likely to touch USD 214 Billion by 2019 with a CAGR of 9%.

~70,000 commercial products are rolled out of India. The Indian Chemicals Industry is 6th in the world and 3rd in Asia in value added term at constant prices.

It is a key constituent of the Indian economy, accounting for about 2.11 per cent of the GDP. Bulk chemicals account for 39% of the Indian chemical industry, followed by

agrochemicals (20.3%) and specialty chemicals (19.5%)

Specialty chemicals are relatively high valued; their demand is rapidly growing, catering to a diverse end-product market.


Sectoral Overview (cont’d)

India accounts for approx. 16% of global production of dyestuffs and dye intermediates.

India is the world’s third largest consumer of polymers and third largest producer of agrochemicals.

Evolution of sector: The sector has moved from commodity based (sourcing of raw/refined chemicals) to need based (manufactured as per needs). Now, the Indian chemical industry is collaborating with manufacturers to create value-based products.

Major sub-segments: Categorised on the basis of end use, the modern chemicals business serves the following broad classes of economic activity: - Base Chemicals- Speciality Chemicals- Pharmaceuticals- Agrochemicals


Segment-wise Snapshot

Segment CAGR (2015-2025)*

Pharma APIs 20%

Agro & Pharma Intermediates 18%

Construction Chemicals 15.3%

Other Performance Chemicals 14%

Agro Chemicals 12%

Basic Polymers & Elastomers 8%

- Average growth (last 5 years) : 11.5 % (Frost & Sullivan, 2014) - Average growth (next 5 years) : 10- 13%

*Frost & Sullivan


Current Growth Drivers

Policy and Eco-system• India is a bright spot at 7%+ in a gloomy

global economy • Development of infrastructure to

enable chemical and manufacturing industry – warehouses, waste management facilities, ports etc.

• Development of PCIPRs to mitigate the feedstock disadvantage

• 100 per cent FDI is permissible in the Indian chemicals sector; manufacturing of most chemical products is de-licensed

•

Industry Evolution and Capabilities

• Evolving manufacturing standards with increasing compliance to global standards

• India is an ideal location - Development of strong Intellectual Property regime backed by R&D focus is picking up pace in India

• Industry is shifting away from developed economies with higher cost of production to developing economies.

Market• India’s burgeoning middle class is creating an unparalleled end-user market• Current per capita consumption of chemicals is very low at 1/10th of global average. This is

expected to increase in the coming decade. There is a large latent demand.• The shift towards the specialty chemicals market is helping the sector to move from cost

arbitrage play of bulk chemicals. • Promising export potential of chemicals, intermediaries and finished goods from USD3.5 billion

in FY03 to USD 29.62 billion in FY14, a CAGR of 9%• Total exports of chemicals grew from USD3.5 billion in FY03 to USD 29.62 billion in FY14, a

CAGR of 9%


Advantage India

Robust Demand* Ample Growth Opportunities

Growth opportunities in Agro, Pharma Intermediates and especially in the Speciality Chemicals segment;

Increasing investment inflows Favorable ecosystem- 100% FDI allowed- Setting up of PCPIRs- Increasing R&D /IP Focus- investments in developing

Chemical Clusters

Potential

With the right eco-system and policy support, the industry can reach USD 214 Billion by 2019.

Strong derived demand - Packaging (15%); Construction (16%); Automotive (12%); Apparel (10%); ~50% of the country’s PVC demand is currently being met through imports

2000-2015 : FDI inflows into the Indian chemicals were ~USD 10.5 Billion.

*figures in brackets indicate projected market growth till FY25 (%per annum); Source: TATA Strategic Management Group


Major Challenges faced by sector

• Raw Material security - Feedstock availability & dependence upon imports for intermediates and high feedstock prices compared to global peers

• Sustainability imperative – need for focus on a Green transformation (products and processes) for long term sustainability

• Infrastructural Challenges

• Logistics cost – extremely high in India compared to other economies

• Regulatory and policy issues (e.g. inverted duty structures)

The inbuilt cyclical trends observed in the industry intensify these challenges.

Depending on the supply and demand-side linkages, the severity of challenges differ across segments.

background paper – chemicals

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