Daily News Analysis

NITI Aayog's Proposal

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NITI Aayog's proposed roadmap to boost India's chemical exports is a significant step toward enhancing the country's position in global chemical supply chains and addressing existing infrastructure and production bottlenecks.

Key Points from NITI Aayog's Proposal:

  1. Goal to Double Chemical Exports by 2030:

    • India aims to nearly double its chemical exports from the current $44 billion by 2030.

    • The target is to overcome the limitations of domestic demand by tapping into the global market, especially in high-value and high-demand specialty chemicals.

  2. Focus on Production Clusters:

    • India plans to develop new and enhance existing production clusters to scale up production.

    • The key regions for this will be Maharashtra, Gujarat, West Bengal, and Tamil Nadu, which already dominate India’s chemical manufacturing landscape.

  3. Improvement of Infrastructure:

    • A significant focus is on upgrading port infrastructure to streamline logistics and storage.

    • The creation of port-centric clusters will directly support chemical manufacturing, enabling smooth movement of raw materials and finished products.

    • The strategic identification of potential supply chain choke points, similar to China’s approach, will be used to guide targeted investments.

  4. Sales-Linked Incentive Scheme:

    • The scheme, proposed as an operational expenditure (opex) subsidy, is designed to:

      • Encourage the production of critical chemicals locally, thus reducing dependency on imports.

      • Support the expansion of sectors like agrochemicals, pharma intermediates, battery chemicals, dyes, and petrochemicals.

      • Promote exports, particularly in high-value chemical segments.

  5. Specialty Chemicals as a Growth Area:

    • The shift towards specialty chemicals (higher value and more in-demand chemicals) could significantly increase India’s share in global value chains (GVCs).

    • This move aligns with NITI Aayog’s estimate that India could increase its share in global value chains to 5-6% by 2030, up from its current 3.5%.

  6. Challenges and Recommendations:

    • The existing PCPIRs (Petroleum, Chemicals, and Petrochemical Investment Regions) in places like Dahej, Paradeep, and Vizag face challenges related to infrastructure, financing, and regulatory hurdles.

    • Recommendations include revitalizing these regions to make them more attractive for investment, along with a focus on long-term sustainability.

  7. Support for MSMEs and Foreign Investment:

    • The new incentives and infrastructure upgrades are designed not only to attract large corporations but also to give a boost to MSMEs in the chemical sector, which are crucial for production diversity and employment generation.

    • Foreign investments will be encouraged through the establishment of more robust infrastructure and the localization of manufacturing.

Current Standing:

  • 6th Largest Chemical Producer Globally: India is among the top producers in the world, reflecting a strong presence in various sectors like bulk chemicals, petrochemicals, and agrochemicals.

  • 3rd Largest in Asia: India stands as the third-largest producer in Asia, following China and Japan, two chemical industry giants.

  • Contribution to GDP: The sector contributes 7% to India’s national GDP, a sizable share that highlights its importance to the economy.

  • Chemical Exports: India ranks 14th in global chemical exports (excluding pharma), with major chemical and petrochemical exports totaling $23.8 billion in FY23.

  • Trade Deficit: India faces a $31 billion trade deficit in chemicals, signaling a significant gap between domestic production and import reliance.

  • Global Value Chain Share: India holds only 3.5% of the global chemical value chain, a fraction of China's 23%. This highlights the untapped potential for growth and export diversification.

Ambitious Growth Target:

  • Market Value in 2023: The chemical market was valued at $220 billion in 2023.

  • Target for 2040: The goal is to reach $1 trillion by 2040, a growth of over 4.5 times the current size. This is an ambitious target but feasible with the right strategies and infrastructure investments.

Government Initiatives for the Chemical Sector:

  • The Chemical Promotion and Development Scheme (CPDS), which facilitates knowledge dissemination and research, is essential to driving innovation and enhancing sectoral capabilities.

  • Under the PCPIR Policy (2020–2035), the government has set ambitious investment targets—reaching $142 billion by 2025 and potentially scaling to $284 billion by 2035.

  • De-licensing of the chemical sector (except hazardous chemicals) is another step that has helped make the sector more dynamic.

Challenges India Faces in the Chemical Export Sector:

  1. Trade Deficit in Chemicals:

    • India faces a $31 billion trade deficit in chemicals (FY23), highlighting the need for both domestic production and export enhancements.

  2. Heavy Dependency on Imports:

    • Key chemicals, such as those used in pharma intermediates and agrochemicals, are often imported, and shifting this dependency is critical for India’s chemical industry to become more competitive.

  3. Infrastructure and Logistics Bottlenecks:

    • Despite its considerable production capacity, India’s chemical industry faces logistical issues, especially when it comes to handling bulk chemicals, particularly at ports.

  4. Domestic Demand Not Sufficient:

    • Limited domestic demand, as emphasized in the report, is a constraint that NITI Aayog plans to address by tapping into the global export market, especially in specialty chemicals.

Actionable Steps and Strategy Going Forward:

  1. Focus on Niche Specialization:
    India should build on its strength in specialty chemicals, agrochemicals, and polymers, areas where it has established itself as a global leader.

  2. Strategic Partnerships:
    Encouraging joint ventures and collaborations with international players in the specialty chemicals sector will enable technology transfer, enhance expertise, and improve market access.

  3. Sustainability and Green Chemistry:
    As global industries and consumers are increasingly prioritizing sustainability, India can carve out a niche in green chemistry, which focuses on producing chemicals with minimal environmental impact.

  4. Investment in Skill Development:
    The sector will need a skilled workforce for the increased demand for chemicals. Developing vocational training programs and research hubs could help India meet this demand.

Concluding Thoughts:

NITI Aayog’s proposal offers a strategic roadmap for transforming India’s chemical industry from being heavily import-dependent to becoming a major global player, particularly in high-demand specialty chemicals. By focusing on production clusters, infrastructure upgrades, and new policy frameworks like the sales-linked incentive scheme, India is positioning itself to take advantage of the expanding global demand for chemicals in areas like clean energy, pharma, and advanced manufacturing.


 

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