Challenges and Shifts in India’s Chemical Export Industry

India’s chemical export industry, a significant contributor to the country’s trade portfolio, has faced considerable headwinds in recent years. According to a McKinsey study, the sector experienced a 4% annual decline between 2021 and 2023, with exports dropping from $36 billion in 2021 to $33 billion in 2023. This contraction reflects a complex interplay of global demand challenges, supply chain disruptions, and increased competition from international players like China.

Key Factors Behind the Decline

1. Stalling Global Demand
   Global economic uncertainty and subdued market activity have caused significant reductions in demand across major export markets, including North America, Europe, and the Asia Pacific (APAC). For example:
   • Growth in India’s chemical exports to North America plummeted from 21% (2019–2021) to just 2% (2021–2023).
   • Europe’s chemical export market slowed drastically, with year-on-year growth falling from 11% to 1% during the same period.
   • The APAC region saw a similar trend, with growth declining from 10% to 4%.
   Specialty Chemicals and Petrochemicals Impact: Supply chain constraints, coupled with industry-wide destocking, have heavily affected exports of specialty chemicals and petrochemicals. Inventory levels in 2023 were around 75 days, significantly higher than the pre-pandemic average of 45 days, indicating overstocking and sluggish turnover.
2. Competition with China
   China’s increasing dominance in the chemical industry has reshaped global dynamics.
   • Significant investments in local production have allowed China to move from being a net importer of petrochemicals to a self-sufficient and potentially export-dominant player.
   • China’s planned capacity additions for key products like ethylene and propylene by 2027—22 million tons and 30 million tons, respectively—underscore its aggressive market expansion.
3. Shift in Regional Market Dynamics
   Latin America’s demand for Indian chemical imports also turned negative, with growth rates falling from 17% (2019–2021) to -4% (2021–2023). Meanwhile, Middle Eastern chemical players are transitioning to specialty chemicals, further reducing demand for Indian exports.
4. Rising Domestic Production in Key Markets
   Countries like the United States and members of the European Union are incentivizing domestic production, reducing reliance on imports. This trend, coupled with high competition, has compelled Indian suppliers to lower prices, straining margins further.

Import Trends and Domestic Dynamics

While exports have struggled, India’s chemical imports increased slightly, from $61 billion in 2021 to $62 billion in 2023. This rise in imports and declining exports reflect a growing domestic reliance on self-sufficient production. In fact, trade deficits have shrunk due to reduced overall imports.

The Road Ahead: Challenges and Opportunities

The Indian chemical industry must navigate several challenges:

• Overcapacity Concerns: With global demand growth projections remaining modest, overcapacity in both domestic and international markets will exert downward pressure on prices and margins.
• Chinese Dominance: China’s growing capacity could further erode India’s competitive edge in both specialty and petrochemical segments.
• Technological Upgradation: Investing in advanced manufacturing techniques and environmentally sustainable production processes can help Indian companies differentiate themselves.

However, opportunities also exist:

• Specialty Chemicals: Diversifying into niche specialty chemicals could offer higher margins and reduced competition.
• Free Trade Agreements (FTAs): Strategic trade partnerships with untapped markets could open new avenues for growth.
• Government Incentives: Leveraging schemes like the Production-Linked Incentive (PLI) for chemicals can help Indian firms modernize and scale operations.

Conclusion

India’s chemical export industry is at a crossroads. While global market dynamics present daunting challenges, they also underscore the need for resilience, innovation, and strategic realignment. By investing in capacity optimization, exploring new markets, and focusing on high-value segments, the industry can chart a path to recovery and sustained growth.