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Background paper – Chemicals


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Background paper – Chemicals

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Background paper – Chemicals

  1. 1. Chemicals
  2. 2. © Confederation of Indian Industry Content  Sectoral Overview  The Potential  Existing Enablers  Major Challenges faced 2
  3. 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. 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. 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. 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. 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. 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. 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.