Background paper – Chemicals

1. Chemicals

2. © Confederation of Indian Industry
Content
 Sectoral Overview
 The Potential
 Existing Enablers
 Major Challenges faced
2

3. © Confederation of Indian Industry 3
Sectoral Snapshot
6th Largest Globally
by 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+ Million
employment generated
by sector
*FDI Factsheet, DIPP

4. © Confederation of Indian Industry
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.
4

5. © Confederation of Indian Industry
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
5

6. © Confederation of Indian Industry 6
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

7. © Confederation of Indian Industry 7
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%

8. © Confederation of Indian Industry 8
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

9. © Confederation of Indian Industry 9
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.