India’s Petrochemical Industry Poised For Growth Amidst Global Challenges

India’s vision of an Atmanirbhar Bharat, or self-reliant India, calls for transforming the country into a global manufacturing powerhouse. A key pillar in this transformation is the petrochemical industry, which plays a vital role in India’s economic development. The sector’s strong backward and forward linkages support numerous downstream industries, including plastics, automobiles, textiles, construction, and consumer goods.

With a market size of $220 billion, India’s chemicals and petrochemicals sector contributes approximately 6% to the national GDP and provides employment to over 5 million people. However, India’s per capita petrochemical consumption is around 12 kg, which is one-third of the global average.

This highlights a significant growth potential for investment in the sector. As the industry evolves, becoming more sophisticated in its products and processes, targeted investments and policy actions are crucial to harness this potential.

Key Challenges Facing The Petrochemical Industry

Despite its growth potential, India faces several challenges in the petrochemical sector. The country remains a net importer of chemicals and petrochemicals, relying on imports for about 45% of petrochemical intermediates.

These imports, valued at $88.6 billion annually, make chemicals and petrochemicals the second-largest import category in India. However, with over $124 billion in planned investments, this dependency is expected to decrease significantly, contributing to India’s goal of achieving a self-reliant economy.

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India’s petrochemical industry faces competition from global overcapacity, particularly from China, which is the world’s largest exporter of key petrochemical products.

An oversupply of chemicals such as polyethylene terephthalate (PET) resins, polyvinyl chloride (PVC), and polyester fiber, combined with flat demand growth in many countries, threatens to flood the Indian market with cheap imports. This could undermine the competitiveness of domestic manufacturers, leading to market share erosion and underutilization of local production capacity.

Measures To Strengthen Domestic Manufacturing

To safeguard India’s petrochemical sector, experts suggest several key measures to combat the challenges posed by global competition and low-cost imports.

1. Tariff Rationalization

Changes in the geopolitical landscape are disrupting global trade flows, causing anomalies in the duty structure for petrochemical products. For instance, India has invested significantly in expanding its domestic capacity for PET bottle-grade chips. Despite this, the country faces an influx of low-cost imports, especially from China, due to tariff disparities. PET currently has a 5% tariff, compared to 7.5% on commodity polymers.

To protect domestic producers, experts suggest increasing the tariff on PET and PVC, which is critical for infrastructure projects like irrigation and construction. Restoring PVC duties to pre-2022 levels of 10% and revising polyester tariffs would support the growth of domestic industries, including textiles, which is a key focus for India’s $350 billion textile sector target by 2030.

2. Enhancing Manufacturing Infrastructure

A robust manufacturing infrastructure is essential for the sector’s growth. India must focus on creating comprehensive ecosystems that support production, storage, and transportation. While the government has established Petroleum, Chemicals, and Petrochemicals Investment Regions (PCPIR) and plastic parks, more petrochemical clusters are needed to promote economies of scale and address logistical challenges.

Additionally, improving transportation infrastructure, such as ports, railways, and pipelines, will streamline the movement of raw materials and finished products, reducing costs and delays.

3. Production-Linked Incentives (PLI)

The Production-Linked Incentive (PLI) scheme can significantly boost the petrochemical industry by encouraging investment and innovation. The scheme incentivizes the production of critical intermediates and specialty chemicals, which are essential for the industry’s growth.

By offering financial rewards for achieving production targets, PLI can attract investments, improve technology, and enhance overall sector productivity, helping India compete on a global scale.

4. Promoting Research and Development (R&D)

Innovation is essential for achieving self-reliance in petrochemicals. India needs to invest in R&D to develop cost-effective and sustainable production technologies. This includes developing alternative feedstocks, adopting advanced manufacturing processes, and fostering collaboration with research institutions.

Emerging technologies such as artificial intelligence (AI) and high-performance computing (HPC) can play a crucial role in developing new materials and improving production efficiency. These advancements will not only open up new applications but also ensure environmental sustainability.

The Road Ahead: A Unified Approach For Growth

India’s petrochemical sector is well-positioned for growth, with a substantial investment pipeline and increasing sophistication in products and processes. However, to achieve the goal of Atmanirbhar Bharat, the sector must overcome challenges posed by global competition, low-cost imports, and tariff imbalances.

The path to success requires coordinated efforts from the government, industry players, and research institutions.

By focusing on measures such as tariff rationalization, infrastructure development, capacity building, and innovation, India can reduce its reliance on imports and emerge as a global hub for petrochemical manufacturing.

This transformation will not only drive economic growth but also strengthen India’s position in the global value chain, making the vision of an Atmanirbhar Bharat a reality.