In recent years, India has emerged as a beacon of opportunity in the global manufacturing landscape. Its diverse industries, ranging from semiconductors to automobiles, textiles to aviation, and even aerospace, are propelling the country towards becoming a global manufacturing hub. One industry that exemplifies this trend is the Contract Development and Manufacturing Organisation (CDMO) sector, which has witnessed remarkable growth and is poised to play a pivotal role in India's manufacturing narrative.

The CDMO industry in India is characterised by its sector-agnostic approach. Catering to a wide array of industries such as agrochemicals, pharmaceuticals, and consumer products, this versatility has been a key factor in India's rapid ascent in the global market.

According to a joint study by McKinsey and the Indian Chemical Council (ICC), the global chemicals market is expected to grow by 11-12 per cent during 2021-2027, followed by a strong 7-10 per cent  growth from 2027-2040. India, currently ranked as the world's sixth-largest seller of chemicals and the fourth-largest in Asia, is projected to triple its contribution to global sales by 2040, reaching a staggering market value of US$ 850-$ 1,000 billion. ^[1]

India’s Attractiveness as a Manufacturing Hub

Several factors are driving this growth. One of the primary drivers is India's appeal as a global outsourcing hub.

With innovator companies focusing on their core genesys of research and development of novel sustainable molecules, they are increasingly turning to CDMO companies for reducing time-to-launch in the market and cost-effective solutions. Indian companies have emerged as preferred partners in this outsourcing boom, thanks to their credibility, expertise, time-to-market and cost-effectiveness.

India's skilled workforce, comprising engineers, chemists, and scientists, has been instrumental in moving the country up the value chain. This, coupled with its strong process chemistry skills, competitive operational costs, and protection of intellectual property rights, has made India an attractive destination for outsourcing. Many global companies, for instance, are shifting their chemical manufacturing assets from their home-country to India as the cost of setting up manufacturing facilities is nearly two-third in India, and it has developed frugal engineering capabilities.

The Indian government's proactive measures, such as the production-linked incentive (PLI) scheme and budget provisions to the Department of Chemicals and Petrochemicals, Govt. of India have further bolstered India's position as a manufacturing hub. These support and policies have created a favorable environment for Indian CDMOs to thrive and expand their growth potential.

Need for an Investment in R&D and De-risking Supply Chain 

Despite the remarkable growth witnessed by India's CDMO industry and its allure as a global hub, there are still untapped opportunities. India's share of global chemicals sales remains at 10-12%, and its agrochemicals exports to key markets like the United States are growing but still lag behind countries like China.

To fully realise its potential, India must address several challenges. One of the key areas that require attention is backward integration. The sector still imports roughly 50% of its basic chemicals and intermediates from China. In fact, India’s chemical industry continues to be a net importer.

This underlines the need for investment in R&D and the development of key starting raw materials. While some players are already actively engaged in R&D through dedicated innovation hubs set up locally, on an industry-wide scale, innovation has been lacking. This is a situation that needs to be turned around. And it is here that incentives can encourage local R&D into sustainable chemistries and enable the industry to commercialise technology platforms like continuous chemistry, vapour phase reactions, etc.

Innovation will play a crucial role in India's manufacturing landscape, not only in terms of raw materials but also in the manufacturing process as a whole. The U.S., for example, has introduced incentives to lure companies to manufacture locally, emphasising the importance of innovation and automation in remaining competitive.

Another challenge that India must address is its infrastructure inadequacies. To address this, the government has approved setting up four Petroleum, Chemical and Petrochemical Investment Regions (PCPIRs). However, with countries like China having more PCPIRs, it gives them a competitive-edge. Hence, for India to up its game, we need to invest in more such facilities. The same can result in cutting down higher costs for container freight from India to key international markets thereby raising market share.

Additionally, it would aid us de-risk supply chains and integrate more closely with global supply chains. While Indian fine and specialty chemical companies are already making strides in this direction, these efforts need to be further amplified to reduce logistics costs and enhance efficiency.

The Road Ahead

India's CDMO industry has evolved significantly in recent years, positioning the country as a key player in the global chemical manufacturing landscape. With planned investments in infrastructure, a skilled workforce, and favourable government policies, India has all the necessary ingredients to solidify its position as a favoured outsourcing destination in the agrochemical sector. Continued investments in innovation, R&D, and capacity expansion are imperative for Indian chemical companies to capitalise on the immense opportunities that lie ahead and establish India as a dominant force in global manufacturing.

Moreover, India's focus on sustainability and green chemistry could further enhance its global appeal. As the world shifts towards sustainable practices, India has an opportunity to position itself as a leader in environmentally-friendly chemical manufacturing. This could not only attract more business but also align with global sustainability goals.

Furthermore, India's rich heritage in traditional medicine and natural products could be leveraged to drive innovation in the pharmaceutical and agrochemical sectors. By combining traditional knowledge with modern research and technology, India can develop unique and sustainable solutions that cater to global needs.

India's journey towards becoming a global manufacturing powerhouse is fueled by its diverse industries, skilled workforce, and conducive government policies. By addressing challenges and leveraging its strengths, India is well-positioned to lead the way in the global chemical manufacturing landscape.

^[1] India: The next chemicals manufacturing hub