Page 77 - Nuvama | IC Report 2023

INDIA: THE 5D ADVANTAGE

Hence, the government is moving in the right direction. There are challenges though. First off, the
government has imposed import duties on some inputs. This could bump up the overall production
cost. Second, while the PLI does offer significant benefits, it could be somewhat negated by an
overvalued exchange rate. Besides, the incentive criteria could have teething problems as some
companies could miss production targets owing to certain stipulations inbuilt in the scheme.

De-globalisation, China + 1: Chemicals benefit

China is unarguably the largest manufacturing base. That said, in some industries, China’s market share
could be moving towards India. Chemicals, we argue, is one area wherein this trend would play out
quite neatly. Over the last decade, China has gained market share from Europe and the US, and is now
the largest player. The Euro area, the second-largest player, is just one–third of China’s size. India is still
small in the overall scheme of things, which implies a large opportunity.

1,600 1,547
Exhibit 11:
1,400 Chemical industry
size across
1,200 countries
1,000
(EUR billion) 800
600
400 499 426
200 144 102 92 66 54 40
0 36
China EU27 USA Japan South Korea India Taiwan Brazil Russia UK
Chemical sales 2020
Source: Cefic Chemdata International

Over the past five years, the Chinese chemicals industry has been facing headwinds such as strict
implementation of compliance norms in keeping effluent discharge under check. It also faced multiple
disruptions over the last decade, adversely affecteing the global supply chain every time. And since
the country has been a global leader in production of agrochemicals and dyes – pigments – and other
commodity chemicals, an en masse shutdown of facilities in China could dislocate global supplies,
thereby catalysing a spurt in global prices.
Factors such as a global slowdown and the US–China trade war have also impacted China’s production
growth. Currently, the US accounts for nearly 15% of China’s chemicals’ exports. However, continuation
of the trade war and the resultant increase in tariffs could have ramifications for its trade and,
subsequently, domestic capacity and production in China.
India is finding favour among companies as a hedge against such disruptions. This is owing to India’s
chemicals’ capabilities, large manufacturing base and consumption market and availibility of raw
materials In fact, early signs are already visible in strong traction in India’s exports. Furthermore, given
India’s low share relative to China’s, there is significant room for further expansion.

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