According to IBEF, the Indian chemical industry stands as the third largest producer in Asia and 12th in world, in terms of market volume. This industry could grow at 14% per annum from USD 160 billion in 2013 to reach a size of USD 350 billion by 2021. However, is this figure realistic?
The chemical industry is one of the oldest industries in India. Over the last decade, it has evolved from being a basic chemical producer to becoming an innovative industry. With investments in R&D, the industry is registering significant growth in the knowledge sector comprising of specialty chemicals, fine chemicals and pharmaceuticals. The Indian Chemical industry has had to face the brunt of the global slowdown in the past 2-3 years. Global economic uncertainties along with recent regulatory issues have resulted in low FDI inflows into the country. But, a large population, dependency on agriculture and strong export demand are the key growth drivers for the Chemical industry, which have resulted in the recent upswing, visible in the latest figures. The estimated size of the market is USD 144 billion, which accounts for about 3% of the nation’s GDP. Per capita consumption of majority of finished products in the chemicals sector is far below the world average; this points out the vast potential for growth in the industry.
The largest segment of the Indian chemical industry are Base chemicals, which comprise of Petrochemicals, man-made fibres, industrial gases, fertilisers, chlor-alkali, and other organic and inorganic chemicals. This is followed by specialty chemicals, pharmaceuticals, agrochemicals and bio-pharma, bio-agri, and bio-industrial products. For instance, India accounts for approximately 7% of the world production of dyestuff and dye intermediates. The chemical industry is one of the most diversified sectors, covering more than 70,000 commercial products. Gujarat and Maharashtra emerged as the most favoured zones for the industry, mainly because of government policies, strategic location and availability of raw material.
Lured by the size and returns of the Indian market, foreign firms have strengthened their presence in India. From April 2000 to November 2014, the total FDI inflow into the Indian chemical industry (excluding fertilizers) was USD 10.1 billion. The share of the chemical industry in the total FDI inflow from April-October 2014 has been estimated to be 4%, which is a huge improvement compared to 1,3% in 2013.
The Government recognizes the chemical industry as a key growth element of Indian economy. In the Chemical Sector, 100% FDI is permitted and excise duty was reduced from 14% to 10% and later to 8%. Industrial licensing has been abolished for most sub-sectors. Import of certain organic chemical products to India requires the approval of the Directorate General of Foreign Trade. A number of initiatives have been proposed in the 12th 5-year plan (2012-2017) to boost the growth of the Indian chemical industry. Policies have been initiated to set up integrated Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR). PCPIR will be an investment region in India spread across 250 square kilometers for manufacturing of domestic and export-related products of petroleum, chemicals and petrochemicals. The Indian Chemical industry has the potential to grow significantly, if some of the key growth imperatives are taken care of. Securing feedstock, the right product mix and M&A opportunities are currently the key imperatives for the chemical industry in India.
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