Chemicals

Indian Chemical Industry – Brief Overview

The Indian chemical industry is among the fastest growing Indian industries. Majority of the chemicals produced in India comprise either upstream products or intermediates, which go into a variety of manufacturing applications including fertilisers, pharmaceuticals, textiles and plastics, agrochemicals, paints and dyes. Over the last one and a half decade, the Indian chemical industry has transformed from manufacturing principle chemicals in a highly regulated market to being a mature industry in a liberalised economy.

Indian Chemical Industry – Segments

The Indian chemical industry comprises a wide and varied spectrum of products that can be sub-categorised into inorganic and organic chemicals, drugs and pharmaceuticals, plastics and petrochemicals, dyes and pigments, fine and speciality chemicals, pesticides and agro chemicals, and fertilisers.

Indian Chemical Industry – Market Size

Post independence era has witnessed a significant contribution of Indian chemical industry to both industrial and economic growth. Accounting for 18 per cent of the output of manufacturing sector, the chemical industry forms 14-15 per cent of total exports and 8-9 per cent of the total imports in India. Chemicals including petrochemicals sector contributes 3 per cent to India’s GDP.

The Indian chemical industry, an important constituent of the Indian economy, is valued at around US$ 35 billion. The industry, the 12th largest in production globally, and third largest in Asia, is growing at an average rate of 12.5 per cent. Modernisation of existing technology through foreign collaborations could further enhance growth.

India is a promising economy that holds potential to produce quality chemicals for world consumers because of its diversified manufacturing base.

A network of 200 national laboratories and 1,300 Research and Development (R&D) centers provide a strong base to the Indian chemical industry to become innovation-oriented. Shifting focus towards R&D would also facilitate growing opportunities for R&D hubs and industry-specific institutes.

In India a number of recent developments, such as establishment of intellectual property rights (IPR), a rapidly growing middle-class population, emerging rural markets and improvements in medical infrastructure have benefitted foreign manufacturers.

Indian Chemical Industry - Market Dynamics

Base Chemicals form the largest segment of the Indian Chemicals Industry (53 per cent), followed by pharmaceuticals (24 per cent). While base chemicals are raw material oriented and involve bulk manufacturing through standardised reactions, pharmaceuticals and specialty chemicals are more R&D intensive, high value and low-volume. Petrochemicals (Olefins and aromatics) are the major sub-segment of the base chemical industry. Olefins demand in India is anticipated to grow at 10 per cent per annum while aromatics demand is expected to grow at 12 per cent per annum over 2010-2015.

Pharmaceuticals industry, forming the second largest segment with 24 per cent share, has evolved over past 30 years from a marginal global player to becoming a world leader in the production of high quality generic drugs. India exports pharmaceutical products to over 200 countries. Spurred by a strong domestic market and enhancing exports, the Indian formulations market is expected to reach US$25.6 billion in 2013-14 from about US$ 12.6 billion in 2008-09.

End-use industries like automotives, electronics, packaged food, textiles et all are driving Indian specialty chemicals industry. Strong domestic demand coupled with huge investments by domestic and foreign players, is making the industry scale new heights. Many international companies have pledged substantial investments in potential Indian markets because of availability of vast pool of skilled and cheap labour and resources.

Biotechnology, accounting for 3 per cent of the total chemicals industry, is currently pegged at US$ 4 billion. It is estimated to be worth around US$ 10 billion by 2015. New opportunities across various sectors including bio-pharma, agri-biotechnology and industrial biotechnology are expected to help the industry grow rapidly in the near future.

India is the fourth largest producer of agrochemicals in the world. The Indian Agrochemicals Industry is expected to grow at 7.5 per cent, to reach over US$ 1.7 billion by 2012, driven by various factors including need for food grain self-sufficiency and the momentum in floriculture and horticulture sectors. India’s 60 per cent of agrochemicals’ production is exported to countries like USA, UK, Russia, Europe, South Africa, Bangladesh, Malaysia etc.

Industry experts expect per capita consumption of plastics in India at 27 kilograms (kg) by 2020 from 8 kg in 2010; thereby aligning the consumption with global standards.

Indian Chemical Industry - Major Investments

India saw around 48 mergers and acquisitions (M&A) deals in 2010 worth US$ 4.9 billion in its pharma and biotech sector.

• Around US$ 33 billion of investment is planned in the upstream industry to set up 11 petrochemical complexes across the country, which will enable setting up new plastic clusters around these complexes, R K Lohia, chairman, national executive committee, Plastindia 2012 pointed out. He added that this will, in turn, provide impetus for growth of polymer consumption to over 15 million tonnes (MT) by 2015.
• Standard Chartered Bank’s private equity segment has invested US$ 19 million in Mumbai-based Privi Organics. Privi is an aroma chemical manufacturer, whose products are used by fragrances and flavours companies and is also exported to over 25 countries.
• Aditya Birla Group has bought US-based Columbian Chemicals for about US$ 875 million. The Indian conglomerate has also placed simultaneous bids for two of the world's three largest carbon black assets.
• The group has also acquired the chloro-chemicals unit of Kanoria Chemicals & Industries for US$ 185 million in an all-cash deal. The deal will make Aditya Birla Group India's largest producer of chloral-alkali, a critical input in the aluminium sector, the group's chairman Kumar Mangalam Birla said.
• Reliance Industries is drawing plans to be a world leader in rubber, and is investing up to US$ 12 billion in the chemicals business to tap the rapidly-growing market for hygiene and healthcare products, Chairman Mukesh Ambani revealed.
• Over-the-Counter (OTC) Russian brands of Mumbai-based JB Chemicals & Pharmaceuticals (JBCPL) are to be acquired by Johnson & Johnson (J&J) for about US$ 260 million. The deal is made by J&J’s wholly owned Cilag gmbH International and is expected to get closed by mid-2011.

Indian Chemical Industry - Exports

During April-February 2011, exports of chemicals increased 22 per cent to US$ 7.5 billion.

India has emerged as an exporter of dyes, exporting dyes to Germany, U.K., U.S., Switzerland, Spain, Turkey, Singapore and Japan. The export of dyes is expected to increase from US$ 1.5 billion in 2005–06 to US$ 2.6 billion in 2020.

Indian Chemical Industry - Government Initiatives

• The government has removed licencing requirements, except for hazardous chemicals and a few special drugs
• Entrepreneurs are allowed to set up chemicals industries following the Industrial Entrepreneurs’ Memorandum (IEM) route
• Under the automatic route, 100 per cent FDI is allowed for all chemicals except hazardous ones. Customs duty
• The peak rate of customs duty on most chemicals is 7.5 per cent.
• The Petroleum Chemical Petrochemical Investment Regions (PCPIR) Policy has been introduced to boost the development of chemicals and petrochemicals investment regions
• Plans are underway to set up port-based chemicals parks in SEZs to encourage clustering, provide infrastructure and enable tax concessions
• Downstream SEZs have been planned to use the output of chemicals parks

The newly approved PCPIR for Tamil Nadu, set up at Cuddalore and Nagapattinam, has received government support of US$ 1.1 billion.

PCPIR is a scheme launched by the Ministry of Chemicals and Fertilizers wherein the authority approved investments of about US$ 34 billion in three states- Gujarat, Andhra Pradesh and West Bengal

The Government of India also plans to establish port-based chemical parks in special economic zones (SEZs).

Indian Chemical Industry – Road Ahead

Overall, the Indian chemical industry has attained a critical size and has the potential to build a US$ 80 - 100 billion specialty chemical industry by 2020. Asia Pacific region now forms nearly 42 per cent of the global market for chemicals, clearly making it the largest contributor.

India has great opportunity to leverage on its talent pool and resources to attain a successful position in specialty chemical landscape. In addition, India has been increasing its export of chemical products in the recent years, so growth will also be a factor of buoyant exports.

Exchange Rate used as on June 30, 2011: 1 USD = 44.7330 INR

References: Newspaper Releases, Outlook content by LANXESS India, Exim Bank Report on Indian Chemical Industry