Chemical companies benefit from government policies and strong GDP.
India is steadily moving up the ranks as a global economic power and a business magnet for investment. Key drivers for success in the chemical sector include proximity to strong growth markets, greater ease in doing business, and the continued development of petroleum, chemicals and petrochemical investment regions (PCPIRs). Backed by one of the strongest GDP growth rates in the world, the future looks bright for the Indian chemical industry.
If China is the dragon economy of Asia, India is definitely a tiger. Witha GDP growth rate of approximately 7 percent1, India is currently outpacing China as the world’s fastest rising major economy. The country is the sixth largest economy by nominal GDP and the third largest by purchasing power parity (PPP).2 India is also on track to becoming the world’s third largest economy by the next decade and the second largest by 2050.3
One of the strongest drivers of the nation’s economy is a population that is rapidly becoming larger, younger, more middle class and more urban.
These demographic trends will support increased demand for appliances, housing, healthcare items, new automobiles, clothing, and a diet that includes more protein and less grains.4 In addition, long-term economic growth for India is forecast because of proximity of expanding markets in Asia, healthy savings and investment rates, and increased integration into the global economy.
Indian chemical companies support a sizable and highly diversified industry that includes commodities, specialities, polymers, agrochemicals and a range of other groups. Total chemical sales are expected to grow from US$139 billion in 2014 to US$214 billion by 2019.5 By 2025, the Indian chemical industry is projected to reach US$403 billion.6
Since 2014, the government administration headed by Prime Minister Narendra Modi has supported a number of reforms designed to encourage business growth by eliminating unnecessary laws and regulations, simplifying bureaucratic processes,and making the government more transparent, responsive and accountable.
These reforms and other initiatives have supported a dramatic, even historic, rise in India’s ranking on the World Bank’s Ease of Doing Business (EoDB) Index — a jump of 30 places into the top 100 countries.7 In fact, India is the first large country ever to record such an increase in ratings over a single year.8
Major challenges remain for the Indian chemical companies. The chemical industry is highly fragmented with intense rivalry among companies. Because 100 percent FDI is allowed, domestic players can face stiff competition from foreign multinationals that have the ability to exert strong price pressures on local markets. Huge capital requirements, patent protection, R&D costs and personnel requirements present other challenges.
But for every challenge there is an equal if not greater opportunity. The fact remains that the center of gravity for the global chemical industry is moving to the East, and Indian chemical companies are well-positioned to take advantage of this transition.
1 India’s growth to recover to 7% in next few quarters: Report, Economic Times, www.economictimes.indiatimes.com/articleshow/62068055.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
2 The World’s Top Economies, Investopedia, https://www.investopedia.com/articles/investing/122315/worlds-top-10-banks-jpm-wfc.asp Based on WEO database, April 2017
3 Top 10 Largest Economies In The World by GDP Nominal (2015), Reinis Fisher, https://www.reinisfischer.com/top-10-largest-economies-world-gdp-nominal-2015
4 United Nations, Department of Economic and Social Affairs, Population Division
5 India’s chemical industry to touch $214b by 2019: report, The Hindu Businessline, 29 October 2017, https://www.thehindubusinessline.com/economy/macro-economy/indias-chemical-industry-to-touch-214b-by-2019report/article7818782.ece
7 India Jumps Doing Business Rankings with Sustained Reform Focus, World Bank, 29 October 2017, http://www.worldbank.org/en/news/press-release/2017/10/31/india-jumps-doing-business-rankings-with-sustained-reform-focus
8 Ease Of Doing Business In India Registers A Huge Improvement, IBEF, Knowledge Centre, 6 December 2017, www.ibef.org/blogs/ease-of-doing-business-in-indiaregisters-a-huge-improvement