India it is likely to account for more than a fifth of the world’s incremental consumption of chemicals over the next two decades, as domestic demand is projected to rise to $1 trillion by 2040, McKinsey said in a report.
In the report titled ‘India: The Next Chemical Manufacturing Hub’, McKinsey said that the country chemical The industry has been an overall outperformer in growing demand and creating shareholder wealth over the past decade.
“It is now poised to play an increasingly dominant role in both global consumption and manufacturing,” he said.
The sector is projected to grow 11-12% during 2021-27 and 7-10% during 2027-40, tripling its global market share by 2040.
“India it is expected to account for more than 20 percent of the incremental global consumption of chemicals over the next two decades. Domestic consumption and demand is expected to rise from $170-180 billion in 2021 to $850-1000 billion by 2040,” he said.
Chemicals find wide use in human life, from detergents to clothing and fragrances, from insecticides to paints and telecommunications to music and media.
McKinsey said growing demand for bio-friendly products globally could benefit India as it is among the top producers of many chemicals used in such products.
“Triggered by the evolving geopolitical landscape and the trend to diversify from existing core manufacturing markets, companies are looking to make their supply chains more resilient. With its strong value proposition, India could be a preferred destination,” he said.
However, India will continue to rely on imports to meet its chemical needs. Of the three main segments of the sector (inorganics, petrochemicals and specialized), only the specialized are expected to be net exporters. Due to limited cracking infrastructure and shortages of key raw materials and minerals, both the petrochemical and inorganic segments will be dependent on imports.
“In recent years, changing geopolitical scenarios have led many countries to focus on domestic self-sufficiency and localized supply chains. However, India’s manufacturing competitiveness benchmarking reveals that India has a strong starting point against to other key global countries. chemical clusters that could translate into India becoming the next chemical manufacturing hub,” McKinsey said.
“India will be the fastest growing center of global demand for chemicals, with domestic consumption growing at a CAGR of 9-10% in the coming years on the back of rising disposable income, a favorable demographic dividend, a growing global preference for bio-friendly alternatives, and increasing diversification of chemical supply chains,” he said.
The specialty chemicals segment is likely to be a key driver of this growth. It has the potential to contribute more than US$20 billion to India’s net exports by 2040, a 10-fold increase from the current total of US$2 billion.
McKinsey said the benchmarking against six global chemical clusters shows both the strengths and areas for improvement of India as a global destination for chemical manufacturing. “Indian chemist companies often face obstacles in raw material availability due to lagging cracking capacity and low access to key building blocks and minerals.”
In addition, India faces a shortage of qualified R&D talent and challenges in timely land and environmental approvals. “Despite this, India is cost competitive in various chemical segments due to low capital and operating expenses like labor, utilities and overhead etc.,” he said.
Coupled with the promoters’ focus on high profitability and a culture of process innovation, Indian Chemical companies generate one of the highest EBITDA per investment unit in fixed assets. “This is evident from the global leadership of multiple Indian companies in segments like agrochemicals, pharmaceutical intermediates, dyes and pigments, carbon black, etc.,” he said.
Many sub-segments in the Indian chemical sector offer opportunities to build businesses at scale. There are winning plays in specialty chemicals (agrochemicals, flavors and fragrances, cosmetic chemicals), inorganic chemicals (caustics, fluoride), and petrochemicals (C4, C6, and C8 derivatives). “These sub-segments score high on both cost competitiveness, a function of domestic raw material availability, trade balance, capacity utilization, process scope, and technological innovation, and market attractiveness, an indicator of market size. , demand growth, export potential,” he added.
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