The specialty chemicals industry in India has grown at a rapid pace of 11.7 percent CAGR over CY15-20 and is valued at around $ 32 billion. The industry is expected to continue growing at a lightning speed, delivering a 12.4 percent CAGR over the next five years and India’s share in the global specialty chemical market is expected to double to $ 64 billion by CY25.
Focus shifting away from China
China is the dominant player in the global specialty chemical space, accounting for a 36 percent market share with exports worth $ 35 billion. In CY19, China’s share was around four times bigger than India.
However, it has come at a heavy environmental cost for them and China is now taking steps to ensure a sustainable environment. In March 2019, around 40 percent of chemical companies in China shut down due to their excessive contribution to environmental pollution. It has disrupted the supply of chemicals to the global market.
Apart from environmental concerns, China’s trade conflict with the US has also resulted in supply uncertainties in the western countries. These countries are looking at alternative sources to reduce their reliance on a single concentrated source, opening up opportunities for countries like India.
India emerges as an alternative to China
Apart from catering to the international demand, India has strong domestic booming industries, which require specialty chemicals. The government is promoting industries like pharmaceuticals, API, automobiles and tyres, steel, dyes and pigments, packaging, flavours and fragrances, textiles, etc.
Specialty chemicals are used as integral raw materials in these industries. It presents a growing domestic market for the specialty chemicals sector. Recently announced production-linked incentive (PLI) schemes for key starting materials (KSMs), drug intermediates (DIs), and active pharmaceutical ingredients (APIs) are likely to attract investment in these sectors, in turn, increasing demand for specialty chemicals.
The government has also adopted several measures to protect domestic industry by introducing an anti-dumping duty on Chinese imports. It will make the industry resilient to cheap imports and protect domestic players.
With these tailwinds, India is expected to double its chemical output by CY25. It is also set to become the fourth-largest chemical producer in world, from the sixth position, in this decade.
Keep an eye on the competition
India would be the biggest beneficiary as the US and European companies face pressures from institutional investors and significant lenders to re-base their supply chain away from China.
Global companies are looking for alternative manufacturing locations to avoid dependency on China. Hence, they are searching for other lower-cost locations that could benefit India.
India, however, is not alone in competing for attention. Vietnam has emerged as a tough competitor, growing its exports faster than India. Through its friendly foreign investment policies, Vietnam has delivered total merchandise exports at an 18 percent CAGR in the last decade. Indian exports, in comparison, have grown at only 4 percent CAGR during this period.
Vietnam recently outdid India to emerge as the preferred choice for electronics and mobile phone companies, looking for alternatives to China. And the same could be repeated in specialty chemicals as well.
According to recent data, of the 56 companies that have moved out of China since its trade war with the US over the last two years, only eight have invested in India, while 26 have shifted base to Vietnam.
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