Global giants tap into India’s chemical manufacturing boom amid policy push and shifting market trends

MOST MULTINATIONAL chemical companies operating in India can boast of their Indian connection dating back to decades, or even centuries! Take Bayer AG Group, for instance. Since 1863, the German major has been present in India’s agriculture and healthcare sectors. Another leading MNC and German chemical major BASF, formerly The Bayer Company, claims its Indian connection goes back to over 130 years. Multinational chemical major Lanxess, operating in India since July 2004 under the new name (it was earlier Bayer Chemicals), also boasts of an Indian legacy of over a century.

“It is not fair to label Bayer as a foreign company operating in India. We are very much an Indian company partnering with the country’s progress,’’ says Simon Wiebusch, MD and CEO, Bayer CropScience Ltd. Such companies have tapped rising opportunities in a growing Indian market for decades, and are now making the country an important global manufacturing hub for chemicals, agrochemicals and speciality products, at a time when the domestic industry is transforming into a major global supplier.

A Fortune India study of 31 chemical and agrochemical MNCs operating in India puts their total income at ₹1,17,339 crore in FY24.

Foreign direct investment (FDI) in chemicals and petrochemicals has also been on a roll for the past few years, especially post-Covid. According to data from the Department for Promotion of Industry and Internal Trade (DPIIT), FDI inflows in chemicals (other than fertilisers) stood at ₹14,662 crore in FY23, a highest-ever record growth of 91%, compared with ₹7,202 crore in FY22. Cumulative inflows stood at around ₹1.34 lakh crore between April 2000 and March 2024.

The China-plus factor

So, what are the factors that attract chemical MNCs to India? The potential of one of the fastest-growing countries in the world with a high population, a rising middle class, and young and educated youth aids consumption of chemical and petrochemical-based products across sectors — from cars to perfumes to phones and building materials. India is the third-largest polymer consumer globally. It is also the sixth-largest producer of chemicals, accounting for 3% of global sales, and the second-largest manufacturer and exporter of dyes and the second-largest exporter of agrochemicals globally. The chemical industry contributes 7% to the country’s export value, with a share of ₹3.70 lakh crore in FY24.

‘’The Indian chemicals industry is currently valued at $220 billion and is expected to reach $300 billion by 2030 and $1 trillion by 2040. The government has a clear focus on investment-friendly reforms, and removal of policy bottlenecks is a top priority,” Anupriya Patel, minister of state for chemicals & fertilisers, said at an industry exhibition in Mumbai in October last year.

“Policy initiatives such as the Production-linked Incentive (PLI) scheme, 100% FDI, Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs) and Plastic Parks aim to create world-class infrastructure and attract investment,” industry body FICCI says in a recent report.

World over, business dynamics are changing post pandemic. Supply chain disruptions and prolonged lockdowns during Covid have made global MNCs rethink their over-dependence on China, the largest chemical producer controlling 45% of the global market. Most of them are now considering India as a hub to source products as part of their ‘China Plus’ strategy, helping domestic companies earn more from contract manufacturing for MNCs. “It does not necessarily mean India is an automatic choice as there are other competitors such as Vietnam. India needs to build up long-term partnerships, infrastructure and big capital investments in the sector,” says Bayer’s Simon Wiebusch.

“Driven by a growing economy and aided by initiatives such as PCPIR, India is well-positioned to carve its position as a global hub for chemicals and petrochemicals. We have committed $350 million in investments to cater to the construction, automotive and industrial sectors, furthering our local-for-local commitment,” says Bhavana Bindra, MD, India, West Asia & Africa, The Lubrizol Corp.

MNCs On Expansion Mode

India has a vibrant chemicals ecosystem, which is attracting investments from multinationals. “India has been recycling PET (Polyethylene terephthalate) for over 30 years unlike any other country and 95% of used PETs are recycled here,” says Vivek Tandon, founder of Germany-headquartered Revalyu Resources, which is setting up the world’s largest PET recycling plant at a single location at Nashik in Maharashtra.

Like Tandon, many MNCs are investing in India, mostly in capital expansion, to cater to Indian and global markets. BASF India, which has eight plants in the country, is now increasing the capacity of its two polymer plants at Panoli, Gujarat, and Thane, Maharashtra by 40%, besides setting up a Polyurethane Technical Development Centre in Mumbai, last year. The Innovation Campus in Mumbai and the Coatings Technical Centre in Mangalore are both part of BASF’s global technology platform.

Speciality chemical company Lanxess, which already has manufacturing sites at Nagda in Madhya Pradesh and Jhagadia in Gujarat, recently started new production sites at Jhagadia, targeting business in the Indian sub-continent and the Asian tyre and rubber goods market. Jhagadia is already a key global production site for Lanxess. Similarly, engineering plastics major Covestro recently launched its production lines for polycarbonate compounding at the company’s Greater Noida plant. It is the first large-sized project in India following Covestro’s spin-off from Bayer in 2015. Adhesive major Henkel recently completed Phase III of its manufacturing facility in Kurkumbh near Pune, a site which launched in 2020. Linde India, part of global industrial gases and engineering company Linde, owns one of India’s largest air separation plants and runs more than 20 production units and filling stations across the country.

It’s already a well-populated list and more are likely to be in the pipeline.