The uniqueness of the chemical industry is that it necessitates both technical manpower and creation of tangible assets. The industry requires human resources with proficiency not only in engineering, but also in technology in order to improve process yield. Improvement in process yield for cost optimisation and finding a better process for sustainable growth are the key success parameters in a highly competitive and regulated industry. Products of the chemical industry are B2B in nature. Therefore, companies are forced to be competitive in pricing their products. Also, the chemical industry is one of the most regulated industries in the world. There are strict regulations aimed at minimising release of chemicals substances during manufacturing and processing.

The chemical industry essentially involves chemical and physical changes of mass of organic and or inorganic raw materials into mass of finish products. Unit processes (e.g. hydrogenation, oxidation, ammonolysis, alkylation, etc.) and unit operations (e.g. distillation, filtration, drying, crystallisation etc.) involved in this mass transformation require physical assets. One cannot deny that rising domestic demand and the need to evolve have forced domestic chemical companies to expand their capacities as well as capabilities.

Speciality chemicals are often customised offerings, based on an in-depth understanding of customer needs and problems. Products are sold based on their functionality in the intended application, rather than on their chemical identity. Therefore, the business requires significant application development and research & development (R&D) investments to stay relevant. Speciality chemicals, in particular, require skilled labour and technology. Companies often take strong intellectual property positions such as patented formulations and registered trade names. Companies transferring contract research & manufacturing services (CRAMS) business and technology transfer for contract manufacturing services (CMS) business to Indian companies expect strong intellectual protection (IP) laws. Here, India has an edge as it has more stringent intellectual property (IP) laws compared to the Chinese IP laws.

Several Indian companies hold leading positions globally in fine and speciality chemicals, at times with 30–80% of the global capacity, although we believe that the Indian speciality chemicals market is still in its infancy. Indian chemical companies have abundant opportunities in technology partnership. Strategic investments in R&D by chemical companies can open up varied opportunities for them. New opportunities in the form of collaboration with technically-advanced global companies can emerge in the industry. It may happen that the R&D work will be outsourced where the Indian partner will perform or support the backend work. This kind of work may come in the sunrise sectors such as electric batteries, renewables, etc.

Conventional wisdom holds that the speciality chemicals business enjoys better margins than commodity chemicals. But it is not always true—the realities in India depend on many factors, including the nature of the speciality, competition, technological complexity, and timing. Therefore, companies have to invest in upgrading themselves. Also, they need to invest in manufacturing either upstream or downstream to improve or maintain margins. For that, you need technology to produce it. Companies are investing in R&D to get those technologies and then investing in developing infrastructure.

The ongoing energy crisis in Europe is a complex situation for Indian chemical companies. European companies are customers, suppliers and competitors of Indian chemical companies. Opportunity emerging out of this crisis could be tactical. In order to derisk their energy supply, there could be supply chain relocation. We believe that transfer of huge capacities for all products to India may not be there. European companies may transfer manufacturing of low-end products while production of critical products and associate technology will be kept with themselves. Large European chemical companies already have a presence in India; thus, Indian chemical companies will have to demonstrate credibility. Investment in R&D will result in developing competencies in chemistries and technologies. This will give confidence to Indian companies and an ability to grab opportunity that has cropped up due to the supply chain relocation strategy of European companies.

Availability of raw material is not an advantage to India. India lacks the availability of key raw materials like natural gas and crude oil. Besides, it has little access to the inexpensive energy source. However, labour cost in India is significantly lower compared to Europe and even China.