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BRIEF REPORT
ON
CHEMICAL AND PETROCHEMICAL INDUSTRY IN INDIA
April 2015
Chemical industry is one of the oldest industries in India. The industry, including
petrochemicals, and alcohol-based chemicals, has grown at a pace outperforming the overall
growth of the industry.
The Indian chemical industry is at the threshold of rapid growth with the Government of India
providing an atmosphere of support and encouragement. India's vibrant chemical and
petrochemical industry plays a significant role in the economic development of our country. In
terms of volume, the Indian chemical industry is the 6th largest in the world and the 3rd largest
in Asia, with the size worth $108.4 billion.
The Chemicals Industry comprises both small and large scale units. The fiscal concessions
granted to small sector in mid-eighties led to establishment of large number of units in the Small
Scale Industry (SSI) sector. Currently, the Indian Chemical Industry is in the midst of major
restructuring and consolidation phase. With the shift in emphasis on product innovation, brand
building and environmental friendliness, this industry is increasingly moving towards greater
customer-orientation. Even though India enjoys an abundant supply of basic raw materials, it
will have to build upon technical services and marketing capabilities to face global competition
and increase its share of exports.
The Indian chemical industry has witnessed robust growth in the past decade and has been
ranked 6th largest in the world and 3rd largest in the Asia according to United Nations Industrial
Development Organisation (UNIDO). The industry has been forecast to reach USD 200 billion
mark by 2020.
Strong domestic demand, driven by increasing purchasing power parity in the country, is one of
the main pillars of Indian manufacturing sector, and India is expected to maintain the healthy
growth in the years to come. Indias geographic location provides easy access to the world
markets; and low cost advantage, availability of talent pool and skilled manpower make India the
destination of choice.
Indian government is rendering extensive support to give impetus to the Indian chemical
industry and has set up the task force to consider suggestions for National Chemical Policy to
ensure steady growth of the countrys chemical sector.
India is the 13th largest country in terms of ethylene capacity and proposes enhancing the
refining capacity to 300 mmtpa in 2017 from the current 190 mmtpa. India is emerging as Asias
refining hub and become the net exporter of petrochemicals to countries like the Middle East,
Korea, Japan and Singapore.
Indian government has set ambitious plans to set up Petroleum Chemicals & Petrochemicals
Investment Regions (PCPIR) in Gujarat, Andhra Pradesh, West Bengal and Odisha to accelerate
countrys industrial growth.
The Indian government has earmarked substantial funds to achieve healthy growth of countrys
upstream and downstream sectors of the chemical industry. During the 11th Five-Year Plan,
Indian government reserved INR 0.626 trillion for refining and marketing sectors and increase
that to INR 1.54 trillion during the 12th Five-Year Plan. Chemicals sector has attracted
cumulative FDI of USD 192 million* in 2009-10.
Inorganic chemicals: The inorganic chemicals industry had an output of approximately 5.9
million tonnes in 2006-07. Of this, alkaline chemicals contributed 5.26 million tonnes, or nearly
90 per cent and basic inorganic chemicals contributed 0.6 million tonnes. Among alkaline
chemicals, soda ash is the largest segment, contributing to 40 per cent of the output caustic soda
has a 36 per cent share and liquid chlorine has 24 per cent. Basic inorganic chemicals have
grown at a CAGR of 10 per cent, from 374,000 tonnes to 602,000 tonnes. As a result of faster
growth, the share of basic inorganic chemicals has gone up, from 8 per cent to 10 per cent.
Carbon black, is the biggest segment in basic inorganic chemicals, with a share of nearly 71 per
cent of the output. Calcium carbide with 16 per cent and titanium dioxide with 10 per cent, are
the other significant segments.
India's drugs and pharmaceuticals industry is expected to grow at a compound annual growth
rate (CAGR) of 14 per cent to reach a turnover of Rs 2.91 trillion (US$ 47.06 billion) by 2018.
The domestic drugs industry, which is valued at Rs 1.6 trillion (US$ 25.87 billion) at present and
is also expected to grow in the local market with aggressive rural penetration by drug makers,
increased government spending on health, and growing health awareness among people.
Indian pesticides & agrochemical industry is estimated at $ 4.25 billion in FY14 and is expected
to grow at 12-13 per cent per annum to reach $ 7.5 billion by FY'19.
Indian crop protection industry is estimated at $ 4.25 billion in FY14 of which 50 per cent are
exports. The crop protection industry has experienced strong growth in the past and is expected
to grow further at 12-13 per cent per annum to reach $ 7.5 billion by FY2018-19.
The Plastics industry in India, growing at 10%, is set to double its per capita consumption in
next 5 years to 16.5 mn tonnes by 2016, led by increasing level of usage in automobiles,
consumer packaging and impact of increased infrastructure spending.
Indian dyes and pigments industry currently accounts for 5% of total chemicals market and is
expected to grow at 8% p.a. over the next five years.
flavors& fragrances. APIs and colorants including dyes and pigments are the key export oriented
products.
In India it has been growing rapidly at 1.2-1.3x of GDP growth rate (12%) over the last five
years and currently stands at $ 21.5 Billion.
1.3.7 Fertilizers
The fertilizer demand in India is expected to grow at 3% CAGR from FY13 to reach 70 mn
tonnes in FY18, higher than the global growth rate of 2% during the same period.
The demand outlook for the fertilizer industry is positive for 2014-15. But a sluggish recovery is
in the offing for the industry as it continues to face significant challenges and uncertainties,
especially the gas price hike front.
Petrochemicals play a vital role in economic development & growth of a country. The growth of
this industry is closely linked to economic growth of a country. Petrochemicals are considered as
enablers for growth of other sectors of the economy. Today, petrochemical products permeate
the entire spectrum of daily use items and cover almost every sphere of life like clothing,
housing, construction, furniture, automobiles, household items, agriculture, horticulture,
irrigation, packaging, medical appliances, electronics and electrical etc. Petrochemicals are
derived from various chemical compounds, mainly hydrocarbons. These hydrocarbons are
derived from crude oil and natural gas. Among the various fractions produced by distillation of
crude oil, petroleum gases, naphtha, kerosene and gas oil are the main feed-stocks for the
petrochemical industry. Unconventional feed-stocks are also gradually coming up like shale gas,
coal, CBM, pet coke etc.
Total production of the Indian chemicals industry was 19,308 Thousand Metric Tonnes in
2013-14.
It is one of the most diversified sectors, covering more than 70,000 commercial products.
Current production of polymers is around 9 Million Tonnes with imports of around 2.8
Million Tonnes.
Polymer demand is expected to grow by 8-10% with healthy growth in industries such as
clothing, automobiles etc.
Ethane, propane, butane and Natural Gas Liquid (NGL) obtained from the natural gas are the
other important feed-stocks used in the petrochemical industry. The basic building blocks
olefins (ethylene, propylene & butadiene) and aromatics (benzene, toluene and xylene) are the
major raw materials from which most of the chemicals are derived.
The feedstocks are used to derive the basic petrochemicals. Basic petrochemicals can be
reclassified as olefins (ethylene, propylene and butadiene) and aromatics (benzene and xylene).
These basic petrochemicals are then used to produce end product petrochemicals.
The Indian government allows 100% FDI in the chemicals sector. No licenses are required for
production of most of the chemicals, including organic, inorganic, dyestuff and pesticides.
Certain products such as wax candles, laundry soaps, safety matches, fireworks and incense
sticks fall under items reserved for the MSME sector in which FDI beyond 24% is permitted
under the government route. Various policies for and promotions being offered by Indian
government to the chemicals sector are:
Fast process to set up a unit: The process of setting up a chemicals manufacturing unit is
simple with the company required to submit an industrial entrepreneurs' memorandum (IEM) to
DIPP.
Petroleum, Chemical, Petrochemical Investment Regions (PCPIR) Policy: The government has
brought out the Petroleum, Chemical, Petrochemical Investment Regions (PCPIR) Policy that
aims for an integrated approach to promote growth and investment in the petroleum, chemicals
and petrochemicals sectors through use of common infrastructure and support services. The
PCPIR is a 250-sq. km. investment region having a combination of production projects, public
utilities, logistics, environmental protection, residential areas and administrative services. PCPIR
proposals have already been approved for Andhra Pradesh, Gujarat and West Bengal. They are
collectively expected to create infrastructure worth INR 39,744 crore and are expected to
generate industrial investment worth INR 4,86,180 crore.
Industrial licensing has been abolished for most sub-sectors except for certain hazardous
chemicals.
The government is continuously reducing the list of reserved chemical items for production
in the small-scale sector, thereby facilitating greater investment in technology upgradation
and modernisation.
Policies have been initiated to set up integrated Petroleum, Chemicals and Petrochemicals
Investment Regions (PCPIR).
PCPIR will be an investment region spread across 250 square kilometers for the
manufacture of domestic and export-related products of petroleum, chemicals, and
petrochemicals.
Growing at a compounded annual growth rate (CAGR) of about 14%, petrochemicals industry
in India is likely to reach USD 100 billion by 2020 from the current size of about USD 40
billion. Petrochemicals currently contribute about 30% to India's USD 120 billion worth
chemical industry which is likely to grow at a CAGR of 11% over next few years and touch USD
250 billion by 2020.
Petrochemicals sector is one of the fastest growing segments with a growth rate of 13% which is
more than twice of growth of India's gross domestic product (GDP) and also the global growth
rate in petrochemical space which is stagnant at 6. Huge investments made in the petrochemical
space bode well for the growth of this segment, besides there is a steadfast growth in the
production activity. Polymers, which is the dominant part of Indian petrochemical industry is
growing at a superb pace, with the middle class household boosting the consumption and also
annually contributes over Rs 80 billion by way of taxes and duties to the national exchequer.
India stands a good chance in providing a lucrative market to the world as the general trend in
the global petrochemicals market has shifted to the Middle-East and Asia from the West.
Encouragement for investment has been another significant growth factor for the petrochemical
industry as the capacity of different products is in production, segmentation, and consumption
trend of each of the products and so the economies of scale play a very important role in the
profit making mechanism of this industry, thereby determining scope of each of the competitors
in industry. The domestic petrochemical industry is in the process of investing over USD 25
billion to meet the surging demand, besides to overcome the broad problems of infrastructure,
power, water availability and others the Government initiative of PCPIRs will greatly motivate
the companies to invest them. Securing feedstock, right product mix, mergers and acquisitions
(M&As) opportunities are currently key imperatives for petrochemical industry in India, besides
there are lucrative opportunities in segments like specialty chemicals, specialty polymers, for
catering to huge emerging domestic demand as also as a manufacturing hub - such initiatives are
imperative for realise the growth potential of Indian petrochemicals industry.
Lion's share for making ''Make in India'' campaign a success has to be come from
Petrochemicals sector. This industry is divided into few basic petrochemicals including olefins,
ethane, propane, aromatic compounds such as benzene, toluene, intermediate petrochemicals,
end products, polymers, synthetic fibers, and synthetic rubber. Compared to US and China,
Indias per-capita consumption of polymers (PO + PVC) is still in nascent stage, however,
opportunity to reach out to a large population and sustain the current economic growth would
drive Indias polymer consumption. India consumes about 5.2 kilograms per capita of polymers
as compared to China per capita consumption of 30 kilograms. India's consumption of polymers
is about 6.2 million tonnes, which is only around 3% of the global consumption of 200 million
tonnes. While globally, the contribution of petrochemicals to the chemicals sector is about 40%
while in India, this sector accounts for only 25-30% of the chemicals industry.
Agro-Chemicals:
India is the third largest producer of agro-chemicals globally.
India exports about 50% of its current production and exports are likely to remain a key
component of the industry.
Specialty Chemicals:
The specialty chemicals market has witnessed a growth of 14% in the last five years; the
market size is expected to reach USD 70 Billion by 2020.
India is currently the worlds third largest consumer of polymers and growth in plastic
demand will drive up consumption further.
Growth drivers include a growing construction industry and adoption of advanced coating,
ceiling and polymer-based reinforcing material in construction as well as plastics, paints and
coatings for the automotive sector.
Colourant Chemicals:
The Indian colourant industry is valued at USD 6.8 Billion, with exports accounting for
nearly 75%.
India accounts for 16% of global industry share and this figure is expected to further
increase.
Other segments include petrochemicals, bio-pharma, bio-agri, and bio-industrial products.
3.3 Challenges
India's high inflation rate and rising prices, weakening business and consumer sentiment and the
complicated access to lending pose a greater threat to the chemical and petrochemical sector.
Raw materials are difficult to procure and expensive due to the lack of adequate facilities at ports
and railways. Many manufacturing plants need to be upgraded and made more environmentally
friendly.
Lack of business confidence, policy paralysis, poor infrastructure, and a difficult business
environment are some of the reasons for no major petrochemicals [foreign direct investment
(FDI)] in India. In order to attract multinationals to invest in India, major structural and policy
changes are required. India's chemical sector spends 1-2% of its turnover on R&D, compared to
5-10% in developed countries. The sector's high resource dependence is a major threat to its
stability. Inputs roughly account for 80% of final outputs, which makes profit margins highly
dependent on input prices. Other challenges include low capacity utilisation and a shortage of
skilled workforce.