Globally, India is the 6th largest producer of chemicals and contributes 3.4% to the global chemicals industry. In terms of size, the Indian Chemicals industry is valued at ~$165bn and expected to grow at a CAGR of ~9% for next 5-7 years.
China, one of the largest manufacturers of chemicals globally, is struggling with pollution related issues which has resulted in shutdown of factories across the country. This coupled with rising manufacturing cost has created a vacuum and opened a window of opportunity for India.
To draw a parallel with the chemicals industry, India lost a massive opportunity, primarily to Bangladesh and Vietnam, for manufacturing ready-made garments (RMG) for global consumption. This can be attributed to lack of supportive policies and measures by the Government of India as well as inability of the stakeholders to capitalize and capture this billion dollar market. RMG has revolutionized and is the major driving force behind Bangladesh’s economy. To put numbers in perspective, RMG accounted for 10% of Bangladesh’s total GDP in 2004-05 and currently accounts for more than 15% of the total GDP. In addition, RMG exports currently contributes ~80% to the Country’s total exports.
We believe the Chemicals industry is at a similar inflection point and knocking on the doors of India.
In our opinion, the Chemicals industry in India is favorably positioned to seize this multi-billion dollar opportunity and needs to focus on the following important pillars:
1. Invest in human capital and skill development
2. Innovate and focus on R&D to gain competitive advantage
3. Upgrade technology to achieve efficiencies and control cost of manufacturing. Also, environmental compliance is critical to avoid a China-like situation
4. Consolidate to achieve economies of scale. Risk of stagnancy or going out of business will be higher with status quo
5. Regulate:
a. Government of India will have to create multiple Petroleum, Chemicals and Petrochemicals Investment Region (PCPIRs), similar to Dahej PCPIR, to leverage benefits of common resources and support services resulting in better cost economics.
b. Secondly, India will have to build robust infrastructure to support domestic and international movement of goods.
c. Lastly and more importantly, the Government of India will have to introduce investor friendly policies and environment to attract FDI in the Chemicals sector.
Is India ready? Will we grab this opportunity or miss the bus?