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India’s chemical industry: Unleashing the next wave of growth

McKinsey 28 Feb 2020 12:00

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India’s chemical story is one of outperformance and promise. A consistent value creator, the chemical industry remains an attractive hub of opportunities, even in an environment of global uncertainty. Worldwide trends affecting the global chemical industry could lead to near-term opportunities for chemical companies in India. How chemical players prioritize and tap this value-creating potential could shape the future of the industry in India as well as the country’s trade performance.

India’s chemical industry: A consistent value creator with a positive outlook

India is an attractive hub for chemical companies. The chemical industry is a global outperformer regarding total returns to shareholders (TRS), 1 1. Datastream, Thomson Reuters, thomsonone.com. and this has resulted in high expectations for sustained, continual growth. The macro perspective on India indicates that while the short-term outlook is challenging, the country’s long-term-growth story remains positive.

The growth is likely to continue despite the economic challenges that caused India’s GDP growth rate to drop to 4.5 percent in the third quarter of 2019. 2 2. GDP figure is for July to September 2019: Shantanu Nandan Sharma, “Severe slowdown: When will the Indian economy recover and how?,” India Times, December 1, 2019, indiatimes.com. A long-term perspective indicates that India has averaged an annual GDP growth of 7 percent for the last 30 years. 3 3. National Accounts and Statistics 2019, Ministry of Statistics and Programme Implementation, Government of India, 2019, mospi.gov.in. The country is also working on becoming a $5 trillion economy. 4 4. “Economic survey outlines strategy to achieve $5 trillion economy, says PM Modi,” India Today, January 31, 2020, indiatoday.in. This long-term optimistic scenario bodes well for chemical companies, especially in light of a long investment cycle. Chemical companies can also benefit from rising domestic demand in chemical end-use sectors, 5 5. Ministry of Statistics and Programme Implementation, Government of India, mospi.gov.in. India’s attractiveness as a manufacturing destination, 6 6. Economist Intelligence Unit, Economist, economist.com. and its improved ease of doing business. 7 7. Doing business 2020: Economy profile India, World Bank, October 24, 2019, worldbank.org.

Six trends are shaping the global chemical industry. While they spell uncertainty in the global context, they could open near-term opportunities in India. 8 8. Trends based on various examples.

Investment opportunities in India

The chemical industry already contributes significantly to India’s trade volume. Capturing emerging opportunities in the near term could make a positive difference to India’s chemical companies and to the industry overall.

In addition, industry players and associations could actively work with the government to address sector-level challenges. Supportive government measures could include an integrated petrochemical and specialty-chemical master plan and fast-tracking the implementation of Petroleum, Chemical and Petrochemical Investment Regions (PCPIRs). The government could continue to work toward the ease of doing business in India by streamlining regulations and processes and by issuing clear directives on future regulatory requirements. Finally, introducing sector-specific skill-development programs and a technology-upgrade fund could boost skill levels and innovation across the industry.

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