India's chemical sector is poised to become a dominant force in global chemical production and sales. The country's rapidly growing economy, large domestic consumer base, and abundant natural resources have created a perfect storm for the expansion of the chemical industry.
Major investments in research and development, along with the construction of state-of-the-art manufacturing facilities, have greatly improved India's production capabilities. Moreover, the government's business-friendly policies and incentives have attracted significant foreign direct investment, allowing Indian chemical companies to modernize their operations and boost output.
With a skilled, cost-effective workforce and a strategic geographic location, India can efficiently supply high-quality chemicals to growing markets across Asia, Europe, and the Americas. As a recent report by chemical industry consultants at McKinsey & Sons states, “The sector is projected to grow by 11 to 12 percent during 2021–27 and by 7 to 10 percent during 2027–40—tripling its global market share by 2040.”
The report continues by outlining the positive factors supporting this growth, naming the major causes for the spectacular growth rate of Indian chemical production as follows:
Growing Domestic Consumption.
Over the next 20 years, India is predicted to account for more than 20% of the increase in world chemical consumption, such that it is anticipated that by 2040 domestic demand will have increased to be worth $850 billion to $1,000 billion.
For this reason, of the three main producers in the chemical sector—inorganic, petrochemicals, and specialty - only specialty is predicted to be a net exporter.
Global Supply Chain Priorities.
Businesses are looking to strengthen their supply chains due to the changing geopolitical landscape. This is causing a shift away from sourcing industrial chemicals in political hotspots or in countries likely to be threatened with sanctions or tariffs. For this reason, India’s location provides a compelling value proposition as a supply chain hub for chemical production and primary manufacturing.
Abundant Low-Cost Labour and Utility Prices.
With more than 470 million workers, India has the second-highest labour availability in the world, behind only China which has the key demographic problem of an aging workforce approaching it over the next decade.
Moreover, India has a plentiful supply of low-cost labour, especially when compared to the chemical industries it is competing with, such as Germany, the Middle East, and America. This factor, alongside low water costs and relatively cheap electricity put the sector in a highly favourable position.
Shifting Customer Preferences.
India is one of the world's top producers of biochemicals and eco-friendly products, and with global demand for these products rising more than most other chemical products, the country is expected to profit handsomely from the trend of changing chemical markets.
Infrastructure and Material Costs.
India has a good source of raw materials and chemical feedstocks, with McKinsey reporting that its input costs are three times lower than Saudi Arabia and four and a half times lower than Germany.
The report also stating that, “India’s infrastructure costs, across construction, material, and machinery, are up to 70 percent lower than other global chemicals manufacturing hubs.”
This well-priced supply includes ample quantities of carbon-based feedstocks for industrial chemical production, most notably self-sufficiency in butadiene, benzene, paraxylene, and orthoxylene.
Tax and Government Regulation.
India offers a competitive 25% corporate tax rate, and while it has a reputation for Byzantine bureaucracy, its democratic routes and upheld justice system offer a safe and fair location for its chemical industry.
Additionally, the government has also prioritized the development of the chemical sector, offering attractive incentives and policy support to spur investment, innovation, and technological upgrades across the industry.
There are, however, a number of issues which will slow India’s chemical industry growth, most surprisingly, for a nation that prides academic achievement highly, India lacks a steady flow of home-grown chemical engineering talent. The McKinsey report noting that, “Only about 1,400 chemical engineers graduate from India’s top 25 to 30 universities every year.” Consequently, India is reliant on imported foreign talent for the largest part of its innovation and research.
This is in stark contrast to China which has a large number of chemical industry graduates and some of the top research institutions in the world.
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That said, the future outlook for India's chemical industry is undoubtedly a positive one, with numerous factors pointing towards continued growth and expansion in the years to come. As one of the fastest-growing economies in the world, India's rising middle class, increasing urbanization, and expanding manufacturing base are all driving robust demand for a diverse range of chemical products, from specialty chemicals and agrochemicals to petrochemicals and pharmaceuticals.
Additionally, India's strategic geographic location and abundant natural resources give it a distinct advantage in becoming a global manufacturing and export hub for chemicals.
For this reason, major multinational companies are already establishing a strong foothold in the country, drawn by the lucrative market opportunities and favourable business environment. With the industry expected to nearly double in size over the next decade, India is poised to cement its position as a leading player in the worldwide chemical landscape.
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