India is the third largest producer of Chemicals and Petrochemicals in Asia and the eighth largest in the world. For now the market is estimated to account for a volume of $100 billion. As China’s Industry for Specialty Chemicals is declining at the moment, India is likely to benefit from it – having the competitive advantage of lower labour costs. What does the shift of business from China to India imply for potential investors?
A reason to decide for India as investment destination is for example its location close to the world’s source of petrochemical feedstock – the Middle East. Further, compared to Western countries, the consumption of Chemicals in India is very low and leaves room for investments in many new segments, such as Specialty and Knowledge Chemicals. Workers in this sector are skilled and available at low costs. Also, the Government supports especially R&D in this sectorand the conducive environment already attracted $10.49 billion Foreign Direct Investment (FDI) from April 2000 till May 2015. This makes India already a manufacturing hub for Chemicals, but it is also interesting as a sales market. India’s population counts for more than 1.3 billion people and 70% of them are employed in the Agricultural Sector – which is strongly connected to the Chemicals Industry. So the demand is constantly high. Another advantage for investors is that unlike the Pharma Sector, high-quality players in emerging markets which can deliver on innovator’s quality and safety parameters are generally limited.
To be able to use the potential given by the decline in China’s Specialty Chemicals Business, companies will have to invest in R&D to develop application and eventually be able to meet customer’s needs. For Indian companies the collaboration with foreign companies to set up their manufacturing in India, might bring the advantage of knowledge transfer, especially when it comes to how to develop Specialty Chemicals of unique nature in environmentally friendly way. Reason being that besides population growth and consumerism, also the increasing awareness about industrial pollution effects the Specialty Chemicals Industry.
If the expectations are actually met in future, the small Indian market of Specialty Chemicals could grow to $761 billion in 2018.
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