2021 promises to be the year of economic revival for the Chemical Industry

2021 promises to be the year of economic revival for the Chemical Industry

by avachem, April 6, 2021

India Inc. has reacted positively to the Union Budget and deeming it well-rounded and holistic. The budget embraces all sectors through different measures to boost economic activity. Despite the effects of the pandemic, the government has given the industry a long term vision to work towards
and a strategic road map.

As per the government’s vision to make India a USD 5 trillion economy, the Indian manufacturing sector needs to grow by double digits on a sustained basis. Companies contributing to the growth need to be an integral part of global supply chains and possess cutting-edge technology. To achieve this, the government has identified 13 sectors under Atma Nirbhar Bharat to transform these sectors into global leaders. The government has also earmarked investment of Rs.1.97 lakh crore over the next five years starting from FY 2021-22. The investment will help bring scale and size in key sectors and also generate jobs for the country’s youth.

The Indian chemical industry is one of the fastest-growing Indian industries. A large majority of the chemicals produced domestically comprise of either upstream products or intermediates, which are
used in a variety of manufacturing applications including agrochemicals, dyes, fertilisers, plastics, pharmaceuticals, paints, and textiles.

The domestic industry ranks as the 12 th largest in production globally, and the third largest in Asia growing at an average rate of 12.5%. The government has also outlined a 2034 vision for the chemicals and petrochemicals sector to explore opportunities that will help improve domestic production, attract investments in the sector and reduce imports.

Over the years, the Indian chemical industry has evolved from being a manufacturing principle chemicals in a highly regulated market to a mature industry operating in a liberalised economy. At present, the Indian chemical industry is valued at around US$ 35 billion and is recognised as
important constituent of the Indian economy.

Growth drivers

The government has already put in motion the implementation of the PLI scheme, to help accelerate the creation of an end-to-end manufacturing ecosystem through the growth of clusters. Besides the 100% FDI allowed under the automatic route in the chemicals sector, with a few exceptions for hazardous chemicals, the government has also given further boost to the industry in research & development space with initiatives such as reducing basic customs duty on several imported products and promoting the ‘Make in India’ campaign.

In January, India recorded Rs.1.2 lakh crore in GST collections, the country’s highest ever, which is a clear indicator that the economy is geared up for an imminent recovery. The successive increase seen in collections over the last four months is expected to be sustained in the coming months as well since more sectors such as aviation, hospitality, entertainment, etc. will resume operations.

The chart indicated the trends in monthly gross GST revenues during the current fiscal year

Source: Press Information Bureau, GOI

The supply disruption in China has benefited the domestic industry as global end-users diversified their vendor base mainly towards Indian players. Closure of plants in China and EU due to rising environmental concerns have encouraged Indian manufacturers to invest further in specialty chemicals. China has also seen high merger and acquisitions activity which has led to a concentration of companies.

Likewise, in other sub-segments as well, the industry is thriving. Take dyes for instance. India is a global supplier of dyes accounting for nearly 16% of the global production of dye intermediaries and dyestuffs. We export dyes to Germany, the UK, the US, Switzerland, Spain, Turkey, Singapore and

Agrochemicals are another key revenue component for India. The country exports almost 50% of its total production. In 2020, there was a significant growth of 30% in export volume compared to 2019 for the period of January to September. The global demand for agrochemicals is also in a sweet spot with international organizations such as the World Bank Group and Global Agriculture & Food Security program allocating significant sums to assist developing countries in purchasing these.

Table 1: Export of key agrochemicals (Unit: 000 tonnes)

Source: Ministry of Commerce

The chart represents a month-on-month comparison of export volume of Agrochemicals for 2019-20  

The chart indicates the export volume of Agrochemicals and a downward trend of Price Index

Source: Pesticides Manufacturers & Formulators Association of India (PMFAI)

The Indian pharma industry proved itself to be a dependable supplier of quality drugs to nearly 200 countries despite multiple headwinds due to the COVID-19 pandemic. India’s pharma industry is on track to reach a size of USD 130 billion by 2030 according to the Chemical and Fertiliser Ministry. FDI inflows in the pharmaceuticals sector touched Rs 3,650 crore in 2019-20, recording a growth of 98 per cent over the previous year.

The pharma industry’s laudable international response to the challenges due to COVID-19 was crowned by the introduction of multiple indigenously developed, safe, and efficacious vaccines for the next stage of the fight against the pandemic, further strengthening its credentials as a world

Similarly, for enabling the textile industry to become globally competitive, attract investments and boost employment generation, the Mega Investment Textiles Parks (MITRA) scheme has been announced in addition to the PLI scheme. Under this, the government expects to create world-class
infrastructure with plug and play facilities to make the textiles industry a global champion in exports. The government plans to establish seven Textile Parks over the next three years.

From a logistics perspective, major ports will be moving from managing their operational services on their own to a public-private partnership model. The union budget has proposed to offer more than Rs. 2,000 crore in FY21-22 which will increased interest among private players and assist in driving exports.

The way forward

The Indian chemical industry holds immense potential and is currently at a pivotal point. With continued support from the government, the Indian chemical sector can remain competitive in the export market, record substantial growth and prove itself to be a reliable partner to the world. The biggest challenge for Indian companies now is to match the scale that their global peers have built over the years. It is now up to the industry to rise to the occasion and emerge as a world leader.