The global chemicals and petrochemicals industry is one of the major sectors that’s even after being a complex one plays an integral component in the global economy and supply chain network.
It is one of the world’s major sectors, both in scope—owing to the extensive use of chemicals in everyday items, coupled with the great variety of chemical products accessible—and the revenue it generates from international trade.
As Asia continues to be the leading market for the chemical industry, India is poised to become a global manufacturing hub in the years to come. The chemical and petrochemical sector contributes over 9% to manufacturing gross value added and 7% to total exports.
One of the largest worldwide, India’s chemical industry ranks sixth in production and 14th in exports. It is also the second largest manufacturer and exporter of dyes, third largest consumer of polymer and fourth largest producer of agrochemicals globally.
Manufacturing over 80,000 different varieties of chemical products, it is also one of the most-diverse industries in the country. Moreover, it provides raw materials to various end-use sectors and serves as a pillar in the nation’s development and journey towards self-sufficiency.
Growth drivers
Domestic demand and strategic efforts to enhance self-sufficiency have resulted in an unprecedented surge in the industry’s market value. Estimated to be worth $220 billion in 2024 and projected to reach $300 billion by 2028 , the chemical industry is a major contributor to India’s economic growth.
A Mckinsey report titled “India: The next chemicals manufacturing hub” has estimated that the Indian chemical industry will grow by 11-12% during 2021-27 and by 7-10% during 2027-40—increasing its global market share by three times by 2040. This growth, the report emphasised, will be driven by:
- Rising domestic consumption: It plays a foundational role in multiple end user industries, including but not limited to agriculture, pharmaceuticals, automotive, electronics, construction and more. Nearly 70% of India’s chemical production is consumed domestically. India is poised to account for 20% of incremental global consumption of chemicals over the next two decades, with domestic demand expected to increase to $850-1,000 billion by 2040
- Changing consumer behaviour: The demand for ecofriendly/sustainable products is gaining momentum worldwide and India is poised to benefit from this upsurge. It is one of the leading producers of the chemicals required for producing such products
- Evolving supply chains: Several geopolitical factors affect the global supply chain for chemicals and petrochemical products. Manufacturers are seeking new markets to strengthen their supply chains. Here, India, with its value proposition, can emerge as a trusted partner
- Government intervention: Policy reforms and incentive schemes like Remission of Duties and Taxes on Exported Products (RoDTEP) , Production-Linked Incentive (PLI) , along with initiatives like Petroleum, Chemicals and Petrochemical Investment Region (PCPIRs) , and Plastic Parks are contributing significantly towards the industry’s growth.
- Others: India’s low manufacturing costs, skilled workforce and natural resources, combined with the nation’s commitment to adhering to and adopting sustainability practices throughout the supply chain, provide distinct advantages in the global value chain.
Key investment opportunities and trends
India’s chemical sector is one of the fastest-growing industries globally and its exports reach 175 countries. It exported chemical products worth approximately $20 billion to its prominent export destinations such as China, the US, Brazil, the Netherlands and Saudi Arabia.
India’s chemical industry offers several products and opportunities to build scalable businesses across several segments, such as specialty, inorganic and petrochemicals.
Specialty chemicals: With growing domestic demand and the global trend of embracing sustainable practices and decarbonising, there is an increasing demand for specialty chemicals. Overall, the specialty segment is the strongest pillar of the industry.
The demand for specialty chemicals has correspondingly increased due to rising domestic and global demand in electronics, automotive, construction, aerospace, food and pharma sectors. The speciality chemical sector accounts for 47% of the nation’s domestic chemical market and is projected to increase at a CAGR of nearly 11% over the next five years.
Meanwhile, agrochemicals – a specialty chemical sub-segment, is currently a $5.5 billion market and poised to account for ~40% of India’s overall chemical exports by 2040.
Petrochemicals: India’s petrochemical capacity is projected to increase from approximately 29.62 million tonnes to 46 million tonnes by 2030. The government’s initiative to establish Petroleum, Chemicals & Petrochemicals Investment Regions (PCPIRs) and 10-plus plastic parks is priming India for a big leap in the petrochemical industry. PCPIR strategy aims to attract investments worth $420 billion within the sector. PSUs like ONGC and BPCL and private players like Haldia Petrochemicals have committed approximately $45 billion to various petrochemical projects.
As polymer demand is set to outpace domestic capacity addition in the next decade, there’s an opportunity for investments in the industry to build capacity for a larger global role.
Outlook for India’s chemical industry
Recently, chemical companies in India have prioritised expansion and capital excellence, one of the primary reasons the industry is robust and growing at its staggering speed. Global MNCs like Lubrizol, Celanese and Nouryom have established technical and global capability centres in India along with greenfield manufacturing plants.
The nation’s chemical industry is firmly and sustainably accelerating towards decarbonisation and proactively investing in R&D and innovative technologies with streamlined functional excellence and increased profit margins.
Major petrochemical companies have allocated significant CAPEX to expand and develop R&D infrastructure. In FY 2022 alone, approximately ₹600 crore was invested in R&D by major chemical companies.
The growing global demand for sustainable chemical products offers India a growth opportunity. The specialty chemicals subsegments will drive growth in the coming years, with an 80% share of India’s chemical exports.
Government support
The potential for expansion and steady growth in India’s chemical industry has been bolstered by numerous schemes, incentives and policy reforms to ease business by the government. Notable among these are:
- PLI Scheme
The PLI Scheme, with an outlay of ₹1.97 lakh crore, focuses on 14 key end-user sectors and offers incentives to boost the country’s production capacity and reduce import dependency. For example, PLI Scheme for bulk drugs envisages manufacturing of 41 such drugs with a total outlay of ₹6,940 crore during 2020-21 to 2029-30.
- PCPIRs
The PCPIRs are special economic zones (SEZs) designed to facilitate petroleum and petrochemical production. The government aims to harness the benefits of shared infrastructure and support services to accelerate investment and industrial/manufacturing development in PCPIRs. Under the new PCPIR Policy, the government estimates investments to reach ₹10 lakh crore by 2025.
- Chemical Promotion Development Scheme (CPDS)
The CPDS promotes the growth and development of the chemical and petrochemical industry by creating informational pedagogical materials, such as research, surveys, data banks and promotional materials.
The scheme helps the Department of Chemicals and Petrochemicals to assist directly or in partnership with other organisations, government agencies and PSUs. The scheme provides grant funding for workshops and seminars to steer changes and reforms on key policy issues affecting the chemical and petrochemical sectors.
- Plastic Park Scheme
The department is implementing the Plastic Park Scheme to support setting up need-based plastic parks, with requisite state-of-the-art infrastructure, enabling common facilities through cluster development approach, to consolidate the capacities of the domestic downstream plastic processing industry. Under the scheme, the India government provides grant funding up to 50% of the project cost subject to a ceiling of ₹40 crore per project.
Chemical industry’s contribution to India’s economy
India is one of the leading chemical exporters globally. The sector is a crucial part of the country’s manufacturing industry, with direct and indirect linkages to most industrial segments, including agriculture, food and beverages, textiles, rubber and petroleum refining.
The chemical sector’s share of Gross Value Added (GVA) in the manufacturing sector in FY 2021-22 is about 9.2% at current prices. GVA of the chemical sector has grown with a CAGR of 8.3% from FY 2016-17 to FY 2021-22.
It employs over two million people and exports to over 175 countries. With a 6% share in the total exports , the sector exports products such as inorganic and organic chemicals, dyes, agrochemicals, plastics, synthetic rubber, filaments and more.
Between April 2000 and March 2024, FDI inflows to the chemicals sector (excluding fertilisers) totalled $22.146 billion. Moreover, the industry is projected to receive further investments amounting to ₹8 lakh crore by 2025.
India is looking towards a sustainable future. It has established itself as a trusted manufacturer and global supplier of dyes, dye intermediates, basic chemicals, agrochemicals, cosmetics, toiletries, castor oils and other chemical products.
The chemical industry plays a significant role in the nation’s commitment to green technology and net-zero emissions by 2070. By streamlining regulatory processes and building a strong infrastructure to support its net zero/climate, the nation is well on its way to becoming the leader of chemical manufacturing.
