More Buying Power to Processors
India’s chemical industry is one of the strongest sectors of the economy, generating a revenue of $230 billion in 2021. Out of this, the bulk and specialty chemicals segment constitute 25 per cent at approx. $60 bn & 21 per cent at $45 bn respectively. The main drivers for this growth have been the increasing domestic demand from end users and robust export growth. As the chemical industry accounts for 18 per cent of manufacturing output and 14.35 per cent of total exports, the onus is on the Indian government to take adequate measures to safeguard its future in the bulk and specialty chemicals domain to play a role in the ‘Aatmanirbhar Bharat’ mission.
The Status Quo
With more than 80,000 commercial products, the chemical industry in India is highly diversified. The industry is broadly divided into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers, and fertilizers.
Segments Of Chemicals & Specialty Chemicals
As the fourth largest agrochemical production market globally, India’s specialty chemicals market is worth $9.2 billion. The agrochemicals sub-segment accounts for most of this market, and it has seen strong growth in recent years’ exports. Major international companies, like Bayer, BASF, and Syngenta, operate in the Indian market, but it is dominated by domestic players.
The nutraceutical ingredients industry in India has seen significant growth over the past five years. Only a few MNCs operate in this segment, and the market is largely dominated by domestic companies. The Indian market makes up for only 3% of the entire global nutraceutical ingredients market.
3. Flavours & Fragrances
In 2019, the Indian F&F industry was valued at $1.4 billion. The segment experienced a high historical Compound Annual Growth Rate (CAGR) of 14.2% between 2014 and 2019. Global giants such as Firmenich, Givaudan, IFF, and Symrise dominate the Indian market, accounting for around 65% market share with the balance being constituted by domestic players.
4. Dyes & Pigments
The Indian specialty chemicals industry has seen strong growth in recent years. A large part of the dyes and pigments produced in India are sold domestically, due to the high demand from end-user markets. The market is dominated by domestic players, with only a handful of multinational companies operating in this space. To offer more high-value, high performance solutions, players must be able to advance up the value chain and comply with strict environmental compliance rules.
Surfactants industry in India is growing at an estimated 11% CAGR over the next five years. This growth is being driven by increasing penetration of surfactant-based products, such as cleaning agents and detergents. The surfactants market is characterized by a large number of unorganized players who cater to unbranded soap and detergent manufacturers. Close to 70% of surfactants are used in home and personal care products.
6. Personal Care Chemicals
The personal care chemicals industry in India has been growing rapidly, with a CAGR of 15% or more during the 2014-2019 period. As of 2019, the industry was valued at around $1 billion. With the strong growth of the Indian cosmetics and personal care products market, this segment is expected to continue growing at a CAGR of 15% over the next five years.
Key Characteristics Of Specialty Chemicals Industry
1. Strong Export Presence
India’s specialty chemicals industry is emerging as an export hub. Exports of the country’s top 10 specialty chemical manufacturers have grown at a CAGR of 20.8% between FY 15-20. India’s low-cost manufacturing capabilities and availability of manpower are enabling it to tap into global markets. The leading chemical companies in India boast a strong reputation with consumers all over the world. This is due in part to the stringent environmental compliance standards these companies adhere to as well as the increased number of products they offer that meet globally acceptable registration requirements, such as reach.
2. Potential Growth In Domestic Market
India’s specialty chemical consumption per person is still much lower than in developed markets. However, things like growing disposable incomes and more people moving to cities are increasing the demand for products that use specialty chemicals. This looks promising for the future of the specialty chemicals industry in India.
3. Low Focus On R&D
India’s specialty chemical industry is largely ‘genericized’ with only a handful of companies developing truly innovative products. Some of the larger players in India spend less than 3% of their revenue towards R&D activities vis-à-vis 6-10% spent by their global counterparts. This indicates a potential lack of commitment to innovation in the country.
There is an inverse relationship between the size of the unorganized market in the specialty chemicals industry and the level of R&D and innovation required. As a result, sub-segments such as agrochemicals, nutraceuticals, functional ingredients for flavors & fragrances and construction chemicals have much smaller shares of unorganized players.
4. Businesses Focusing On Sustainable Chemistry
In India, the term ‘green chemicals’ or ‘sustainable chemistry’ has been evolving rapidly. As awareness about the impact of harmful chemical elements on human health and the environment increases, there is more concern about the environmental impact of chemicals. This has caused governing bodies and other people involved to consider moving towards sustainable methods of manufacturing chemicals.
Impact Of COVID-19 On The Industry
The Indian speciality chemicals industry has been on a strong growth path in recent years. The outbreak of the novel coronavirus (COVID-19) led to unprecedented disruptions in manufacturing activity, with lockdowns being imposed across the country. Initially, the lockdown led to supply chain disruptions for the specialty chemicals industry. However, it was one of the first sectors to return to normalcy. Several players were able to resume work, albeit partially, within the first few weeks of the lockdown.
There have also been efforts by the Indian government to increase the production of several bulk chemical commodities, including methanol, which is essential to produce formaldehyde, pharmaceuticals, pesticides, and dyes.
COVID-19 has forced Middle Eastern manufacturers to shut down methanol plants, driving up the price of the bulk chemical. With a capacity to produce 525 metric tons per day, Gujarat State Fertilizers & Chemicals has restarted methanol production after seven years, to
help mitigate the increased costs. The state-run Rashtriya Chemicals & Fertilizers (RCF) has also begun producing methanol with a capacity of 242 metric tons per day at its Mumbai plant. In the past, RCF imported methanol.
Among the world’s exporters of chemicals (excluding pharmaceutical products), India ranks 11th, and among the world’s importers, it ranks sixth (excluding pharmaceutical products). However, due to the COVID-19 pandemic, both the government and businesses have been forced to take action to contain the virus. For those units reliant on imports of intermediates and feedstocks, especially from China, the supply chain disruption during the pandemic phase had a severe negative impact. In addition, China’s chemical industry structure is altering as a result of stricter environmental regulations, which may have long-term effects on the supply chain.
Atmanirbhar ‘Bulk & Specialty Chemicals’ Going Forward
Thanks to the automatic route, 100% FDI is allowed in the chemicals sector (except for certain hazardous chemicals). Chemicals (excluding fertilizers) attracted $20.4 billion in foreign direct investment from April 2000 to June 2022. In the fiscal year 2021–2022 (up to June 2022), the total exports of major chemicals and major petrochemicals grew to Rs 36.52 thousand crores from Rs 34.68 thousand crores. Over the same period last year, imports rose from INR 42.48 thousand crores to Rs 55.26 thousand crores. Between 2020 and 25 the demand for chemical products are anticipated to increase at a rate of about 9% per year, according to Invest India.
As an example of self-reliance in the bulk and specialty chemicals sector, the government has enacted a Bureau of Indian Standards certification that blocks the dumping of poor-quality chemicals in the country. Plus, the government has implemented several reforms over the past few years to promote business growth by removing pointless regulations, streamlining administrative procedures, and improving process transparency, responsiveness, and accountability.
Ethanol is another bulk chemical with increased domestic production. A glut of sugar has led to the government encouraging sugar mills to divert sugarcane for ethanol production. As part of its efforts to reduce fossil fuel imports, India has set a target of increasing ethanol blending in petrol to 10% in the next two years. In September, the government further promised revenue increases to bulk ethanol producers and extended soft loans to 349 sugar mills and 13 distilleries. Self-reliance can be achieved by ramping up in-house production facilities.
The previous government is also to be touted in this regard, as it was them that unveiled the “Petroleum, Chemicals, and Petrochemicals Investment Region” (PCPIR) policy in April 2007, which promotes the environmentally responsible and integrated development of international integrated and environmentally friendly global industrial corridors. Chemical and petrochemical companies like Opal, ONGC, Gujarat Petronet, BASF, GACL, Gujarat Fluorocarbon, SRF, Hindalco, Lanxess, Welspun, and Reliance produce basic petrochemicals like Ethane C2, Propane C3, and Butane C4; downstream petrochemical products, i.e., polymers and fibres, heavy chemicals, pigments, and additives, are housed in the PCPIR.
More than two million people are employed in the Indian chemical industry. With more than 1.12 lakh crore invested in 180 operational industrial units, it has developed into one of the nation’s fastest-growing industrial clusters. Additionally, 650 units are under various phases of building. 1.35 lakh indirect jobs were created by the industries established in this PCPIR, in addition to 45,000 direct jobs.
The Indian chemical sector must protect itself under this drive for self-sufficiency by developing local capacity for these essential intermediates and specialized chemicals. If the industry is to adapt to the demands of the evolving market, the clearance process for new facilities must be quicker. The industry will need between $75 billion and $100 billion in capital investment to build new manufacturing facilities in India, as well as increased capital expenditures for feedstock facilities and a shift away from reliance on imports and a concentration on exports. Investment in support infrastructures, such as a strong port network and economical, reliable electricity and water supplies, is also crucial to ensuring effective and ongoing operations.