India is currently the sixth-largest chemical producer globally, and the second-largest in Asia. It has risen to become a key player in the global chemical sector. By 2023, it reached a market size of USD 220 billion, accounting for more than 2.5% of worldwide chemical sales, exporting to over 175 countries. The sector also has over 2 million employees contributing to almost 7% of the nation’s Gross Domestic Product.
With its large domestic market, highly qualified workforce, ample natural resources, and ongoing geo-political issues with China, India is on the right track to becoming the next global hub for chemical manufacturing, only if certain challenges are dealt with aggressively.
Factors Driving India's Growth
Shifting Supply Chains - China+1 Strategy
After decades as the largest chemical manufacturer in the world, China is currently dealing with several serious issues like rising labor costs, strict environmental laws, and geopolitical trade tensions.
Because of this, most of the industry players are starting to adopt the China+1 strategy, which diversifies supply chains to reduce heavy dependency on a single country. This presents an opportunity for India to become a more popular destination for major global chemical players.
Opportunities Presented by Growing Trade Deficit
Trade deficits happen when a country imports more goods and services than it exports. At present, India's USD10 billion trade deficit, particularly in the chemical sector, highlights a strategic shift toward positioning itself as the next manufacturing hub by focusing on local manufacturing.
When India exports less, it means the country is buying more from other nations than it sells. To balance this negative trade balance, the government is supporting local factories, helping them grow, creating jobs, and strengthening India’s manufacturing industry. At the same time, importing key raw materials helps Indian factories produce more goods, not just for local use but also for global markets. This boosts India's role as a major manufacturing hub.
Demographic Dividend Playing a Key Role
India’s growing population plays a key role in its growth as a chemical manufacturing hub. With a young population, India will benefit from a significant demographic dividend. By 2030, the working-age population is expected to account for 68.9% of the overall population, providing a sizable pool of trained labor, according to an EY analysis.
Since a sizable section of the population is in the working age range, the chemical industry in India has a consistent pipeline of new talent, especially in areas like R&D, production management, and chemical engineering.
Lower Operation Costs
With approximately 470 million workers, India boasts the second-largest labor force in the world, following China. Its labor costs are among the lowest, at less than ₹160 per hour, making it highly competitive compared to other countries.
Additionally, India's industrial-grid power costs ₹8.3 per kWh, and water prices range between ₹50-66 per m³, which are also competitive with those of other nations. These reasons make it appealing for investors to set up front in India.
Government’s Impact on the Industry Development
The government has set a vision for the chemicals and petrochemicals sector by 2034, aiming to boost domestic production, cut down on imports, and draw in more investments to help the sector grow. Some of the government initiatives include:
- A PLI Scheme allocating a massive ₹18,000 crore to boost domestic chemical and pharmaceutical manufacturing, out of which ₹6,940 crores were reserved for developing the 41 critical KSMs (Key Starting Materials) and APIs (Active Pharmaceutical Ingredients) targeted at reducing import dependence. This is indirectly expected to attract more than ₹50,000 crore in investments and create 20,000 jobs.
- Through schemes like Skill India and PM Kaushal Vikas Yojana, the government is actively preparing the incoming young workforce with all the necessary technical skills needed for chemical manufacturing. These programs aim to train over 10 million individuals annually over the coming years, addressing the skill gap in the chemical and pharmaceutical sectors.
- Dedicated chemical hubs like the Petroleum, Chemicals, and Petrochemical Investment Regions (PCPIRs) in the states of Gujarat, Andhra Pradesh, Odisha, and Tamil Nadu are leading large-scale manufacturing with shared infrastructure and logistical benefits. This PCPIR policy is expected to create 33.83 lakh job opportunities, 80% of exports over the next two decades.
- The Indian government has lowered the corporate taxes to around 15% which are levied on establishing a new manufacturing unit. Along with this, the government is also introducing schemes that are more focussed on improving exports, for example, the Merchandise Exports from India Scheme (MEIS) to encourage expanding manufacturing. Apart from these, the duty exemptions on raw material imports are also playing a key role in boosting chemical exports, which had already reached $29.3 billion in FY 2023.
The Path Ahead – Tackling Key Challenges
Nevertheless, despite the opportunities we have discussed so far, there are still some barriers that we as a country need to address going forward. One of the major hurdles is our heavy dependence on imported raw materials. With over 60% of our petrochemical feed stock coming from outside our country, the Indian chemical industry is in a constant state of vulnerability to price fluctuations and supply chain disruptions.
Environmental sustainability is yet another major challenge that we face today. The government has to provide regulations and incentives for supporting greening practices — be it waste management, or cleaner production technologies in the industry.
Advancement in technology is the order of the day to remain competitive globally, and it calls for investment in innovation, digitalization, and automation to manufacture high-value specialty chemicals. India can create a more self-reliant, sustainable, and internationally competitive chemical sector by overcoming the above challenges.
Projected Key Trends – Shaping India's Chemical Industry
India's chemical industry is on a steep growth trajectory, with expectations touching US$ 304 billion by 2025 with a CAGR of 9.3%. Domestic consumption will drive the market size to US$ 1 trillion by 2040 when India will be a global manufacturing hub.
Specialty chemicals will be the growth driver, with net exports increasing tenfold, from US$ 2 billion in 2021 to US$ 21 billion by 2040. Agrochemicals, dyes, cosmetics, and food additive chemicals will contribute nearly 80% of exports, reflecting India's cost competitiveness and innovation in these products. The agrochemical market alone, worth US$ 5.5 billion and when growing at 8.3% CAGR, will lead with 40% of chemical exports by 2040, cornering 13% of the world market share.
A few key trends that are projected to shape the future of India's chemical manufacturing industry:
Move Towards Sustainability & Green Chemistry
Today the world is leaning more towards sustainability which is evident through a rising demand for more eco-friendly and biodegradable chemicals. With this, there is a strong push to minimize carbon footprints and adopt green solutions, so naturally, the chemical industry in India is embracing practices that put environmental responsibility on the top list of priorities.
Digital Transformation in Manufacturing
Because the world is moving at such a fast pace in terms of digitization in industry practices, we can call this shift the Industry 4.0 revolution, and India is applying 4.0 technologies like IoT (Internet of Things), AI (Artificial Intelligence), and blockchain to manufacturing. These technologies are transforming how businesses operate, enabling more efficient production and better management of resources.
Integrated Manufacturing Operations
Traditionally, the Indian chemical manufacturing practices have been fragmented, with separate processes for research, production, supply chain, and distribution. But this is changing as the industry is shifting more towards an integrated approach and Contract Development and Manufacturing Organizations (CDMOs) are playing a key role in this by offering end-to-end solutions right from research to production and distribution.
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