The chemicals & petrochemicals sectors in India is well poised for a stable phase of multi-decade growth. Robust domestic ‘aspirational’ demand from rising affluence, higher per capita income, poverty alleviation, and effective social security policies by the government, shall be growth drivers for the sector -- backbone for many industries. As a building block for almost every industry, the sector shall gain immensely from policy reforms, and a culture of innovation, as applications proliferate, and new materials come to the fore.

Both these sectors have been a superlative value creator for the Indian economy. For one, it has created wealth – giving high returns to investors amid volatility. It has also created jobs, at a time when the entire economy, in general, was reeling under the unprecedented impact from the pandemic, thus providing lives and livelihood.

Today, despite the numerous challenges, namely, from inflation, geopolitical concerns, and supply chain disruption, the sector continues to deliver value. Yet, we have barely scratched the surface and the headroom for growth is immense. Anecdotal data can provide some insights. For instance, the industrial (and industrious) state of Gujarat is the highest contributor in terms of both, Gross Value Added (GVA) and Value of Output, for the chemicals and the chemical products sector.

It contributes over 1/3rd to India’s total pie. The United Kingdom, a country slightly larger than the size of Gujarat, and a comparable population, is among the top producers of chemicals globally, and is also an export powerhouse contributing over 3% of dollar (US$) value-worth of chemicals exported.

Of course, one may argue that factors such as economic and industrial development, infrastructure, continuity of regulation & policy, are better suited for development of chemical industry in the advanced economies. However, the comparison is simply to provide a glimpse of the tremendous potential that the chemical sector holds, especially as India comes of age, as a global superpower.

The Gross Value Added (GVA) of the chemical sector has grown with a CAGR of 13.49% between 2013-14 to 2018-19. The growth in Value of Output for the manufacturing sector between the same period was 7.24%, while that of the chemical industry was 8.20%. Undoubtedly, the industry has consistently outperformed the rest of the manufacturing sector, in terms of growth in value of output.

Some estimates suggest that the industry is slated for a 9.3% growth to reach US $300 billion by 2025. However, going by the current trends, it would hardly come as a surprise, should the real figures outpace the estimates. India currently is a net importer of most chemicals, barring a few, namely, pharmaceuticals products, man-made staple fibres, man-made filaments and tanning or dyeing.

Data suggests that the percentage share of exports in the total pie of overall exports has increased steadily over time. Important factors such as economic growth and social emancipation are catalysts that shall boost domestic consumerism and consequently, higher per capita utilization of chemicals (directly or indirectly).

Two major initiatives by the Government, that of ‘Make in India’ and ‘Atmanirbhar Bharat’, are aptly designed for the chemicals & the petrochemicals sector to flourish in the country. The industry needs to build scale via ecosystem – this entails creation of Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIRs) across all four corners of the country, infrastructure linkages for a hub-and-spoke model and finally, integrating the value chain.

Under the PCPIR Policy 2020-35, the government envisions investments of up to Rs. 20 lakh crore, by 2035, across all PCPIRs in the country. With 100% FDI-route available for most chemicals, and the emergence of ‘China+1’ policy – that is, the deliberate efforts by the global economy to diversify manufacturing and logistics from China, PCPIRs can be the perfect ecosystems for the industry.

As multinational giants coexist side-by[1]side MSMEs, a concoction of global capital and technology, along with local expertise and skilled manpower, can create scale and quality that can make India, one of the largest producers, and exporters of chemicals. This is taking shape in some ways today – however, proliferation of PCPIRs can revolutionize the Indian chemical industry.

PCPIRs apart, the government’s overall economic vision and reforms shall aid growth. For instance, the recently announced GatiShakti Master Plan in the Union Budget 2022, shall boost consumption of specialty and construction chemicals, and at the same time, address the issue of logistic challenges faced by the very sector that helped build it.

Similarly, the push to decarbonize mobility via adoption of Electric Vehicles (EVs), shall increase uses, ranging from aiding battery technologies to applications in new age mobility. The India electric vehicle market is expected to reach US $17.01 billion by 2026, growing at a CAGR of 23.47% by 2026; favourable policies around owner[1]ship and maintenance of EVs are expected to accelerate the adoption of these vehicles.

The government has already introduced the Production Linked Incentive (PLI) scheme for automobile and the auto component industry, to enhance India’s manufacturing capabilities for Advanced Automotive Products (AAT) to boost its quest towards clean mobility.

Similarly, the National Policy on Biofuels, 2018, is essentially a step towards energy transition and diversifying India’s energy mix. However, it can succeed only when the chemicals Industry scales up to capture the specific demands for fuel blending.

At a broader level, structural shifts are going to be critical for ‘Make in India’ to take shape. India’s manufacturing sector, in general, has been a laggard, when compared to its peers in South Asia or even, among other emerging economies. Despite the good show, there is a lot for the chemical industry to achieve. While ‘China+1’ is still taking shape, India’s neighbours and other peers have already taken off at a steeper plane.

China has in many ways been the world’s manufacturing hub over the past two decades and is also a mega consumer. In my view, the Indian chemicals & petrochemicals industry should not only aspire for scale and efficiency but explore niche areas where it would have a competitive edge.

For instance, industries such as cosmetics, fashion, and FMCG are poised for robust growth, as the pandemic recedes, and spending levels rise. This augurs well for segments such as perfumery cosmetics, essential oils, and products that are linked to the senses, where India has an edge. Also, it would equally aid faster growth of chemicals linked to packaging of products.

What this brings to the fore, is that it is essential to explore, diversify and build scale by integrating the value chain, and not simply by focusing on a single segment of the industry.

‘Atmanirbharta’ can succeed, only when the industry builds capabilities across the value chain. This shall reduce dependence on imports, deleverage risks emanating from supply chain disruptions, and more importantly boost the economy.

As the government shifts focus on industries such as electronics & semiconductors, renewable energy, and pharma, the role of the chemicals & petrochemicals industry shall evolve into a more specialized one. Eventually, it shall emerge as a bridge towards making in India, for the world.