India is likely to account for a fifth of the incremental global consumption for chemicals over the next two decades, as domestic demand is projected to grow to $1 trillion by 2040, McKinsey said in a report.
In the report titled ‘India: The Next Chemicals Manufacturing Hub’, McKinsey said the country’s chemical industry has been a global outperformer in demand growth and shareholder wealth creation over the past decade.
“It is now poised to play an increasingly dominant role in the global sector, both in consumption and manufacturing,” it said.
The sector is projected to grow by 11-12% during 2021-27 and 7-10% during 2027-40 – tripling its global market share by 2040.
India is expected to account for over 20% of the incremental global consumption for chemicals over the next two decades. Domestic consumption and demand is expected to grow from $170–180 billion in 2021 to $850–1000 billion by 2040.
Chemicals have a wide range of uses in human life – from detergents to clothing and fragrances, from pesticides to paints, and from telecommunications to music and media.
McKinsey said India could benefit from the growing demand for bio-friendly products globally, as it is one of the leading producers of many chemicals used in such products.
“Driven by the emerging geopolitical landscape and the trend to diversify away from existing key manufacturing markets, companies are seeking to make their supply-chains more resilient. With its strong value proposition, India could be a preferred destination,” Said this.
“However, India will continue to depend on imports to meet its requirements for chemicals. Of the three main segments of the sector – inorganic, petrochemicals and specialty – only specialty is expected to be a net exporter. Due to limited cracker infrastructure and shortage of key feedstock and minerals, both the petchem and inorganic segments will be dependent on imports.
“In recent years, changing geopolitical scenarios have prompted many countries to focus on domestic self-reliance and local supply chains. However, benchmarking of India’s manufacturing competitiveness shows that India has a strong initial There are points versus other major global chemical groups that can transform India into the next chemicals manufacturing hub,” McKinsey said.
“India will be the fastest growing global demand center for chemicals, with domestic consumption expected to grow at 9-10% CAGR over the coming years, rising disposable income, a favorable demographic dividend, global demand for bio-friendly alternatives increasing preference for, and increasing diversification of, global chemical supply chains,” it said.
The specialty chemical segment is likely to be a major driver of this growth. It has the potential to contribute over $20 billion to India’s net exports by 2040, which is 10 times the current total of $2 billion.
McKinsey said the benchmarking against the six global chemical groups brings to the fore both India’s strengths as a global destination for manufacturing chemicals and areas for improvement. “Indian chemical companies often face constraints in feedstock availability due to low capacity of crackers and poor access to building blocks and key minerals”.
Additionally, India faces a shortage of skilled R&D talent and challenges in timely environmental and land approvals. “Despite this, India remains cost competitive in many chemical segments due to low capital and operating expenses such as labour, utility and overhead expenses etc.”
Coupled with the promoters’ focus on high profitability and a culture of process innovation, Indian chemical companies generate one of the highest EBITDA per unit of investment in fixed assets. “This is evident from the global leadership of many Indian firms in sectors such as agrochemicals, pharma intermediates, dyes and pigments, carbon black etc,” it said.
Several sub-sectors in India’s chemical sector offer opportunities to build large scale businesses. Winning plays exist in specialty chemicals (agrochemicals, flavor and fragrance, cosmetic chemicals), inorganic chemicals (caustic, fluorine) and petrochemicals (C4, C6 and C8 derivatives). “These sub-segments score high on both cost competitiveness – domestic feedstock availability, balance of trade, capacity utilisation, process scope and technological innovation – and market attractiveness, an indicator of market size, demand growth, export potential.” This couple.