How petrochemicals are shaping India's rise to a $5 trillion economy

the basis of our economic growth

We live in a world where petrochemicals are an integral part of modern society. From the cars we drive to the electronics we use to the packaging we need, petrochemicals are becoming increasingly important. Plastic is an integral part of our everyday life. It is the fastest growing group of petrochemical raw materials in the world. As India becomes a $5 trillion economy by 2024-25, the share of the petrochemical industry and its derivatives will become more prominent as it is the backbone of agriculture.infrastructure,productionand service

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Unlike other industries, the resilience of the global petrochemical industry in the post-Covid era in early 2022 has resulted in a strengthening of petrochemical market fundamentals, creating unique value. Polymeric plastic products help solve various challenges during the pandemic. It is incredible that a global pandemic can be so effectively contained without the use of polymers. The multifaceted growth in the consumption of healthcare products and flexible packaging for consumer goods, food and e-commerce products has led to increased demand for certain polymer products. Overall, the industry sees strong demand growth in 2022 and will continue to support global economic growth through 2030, as well as significant drive towards a circular economy through plastic recycling and sustainable development.

globallytrendand opportunities in India

Petrochemicals are fast becoming the main driver of global oil consumption. accordingInternational Energy Agency, the industry accounts for more than a third of the growth in oil demand by 2030 and almost half by 2050, ahead of the transportation sector. At the same time, the use of fossil fuels is under pressure from a combination of better fuel economy, alternative fuels, and electrification due to increased demand due to climate change. Therefore, stagnant global fuel demand and overall growth over the next two decades and the profitability of petrochemicals will contribute to the future of the petrochemical industry, with important implications for global energy security and the environment.

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Over the past decade, China has become the largest petrochemical market due to China's petrochemical self-sufficiency policy, followed by the United States due to recent capacity increases. Petrochemical growth in the EU has been stagnant for several years due to high plastic consumption, so petrochemical hubs in Asia and the Middle East are experiencing secular growth. A combination of economic growth, population growth, increasing skill base, and technological development in developing countries has resulted in a growing demand for petrochemical plastic products.

Despite the petrochemical boom we have experienced and its cyclical nature, the global petrochemical industry continues to face certain uncertainties, including ongoing trade restrictions due to war, the drive for a circular economy and sustainable development, and increasing bans on plastics from single use. Amid all the uncertainties, including demand for crude oil products, plus rapidly growing demand for petrochemicals, India is likely to achieve more sustainable fuel demand as plastic consumption accounts for about a third of the world plastic consumption

Both India's public and private oil companies have intensified plans to invest in petrochemical capacity, hoping to reduce their heavy reliance on imports and meet strong growth in demand for polymer products. Reports from various analysts have pointed out that the petrochemical industry in India will grow at a CAGR of 9-10% for the next 20 years as around 12-14 petrochemical crackers across the globe do not have enough capacity to meet Indian demand.
Potential demand is growing. Due to the favorable geopolitical situation and the availability of cheap resources, the China plus one business strategy is gaining momentum to diversify into other advanced developing countries like India. Major international companies including Saudi Aramco, BASF, Rosneft, ADNOC, Borealis and several others have formed joint ventures and invested heavily, which may change India's image.
Petrochemical industry.

By 2022, India has become the sixth largest player in the global petrochemical industry, with a market size of approximately USD 190 billion. Strong economic progress in India, supported by strong macroeconomic fundamentals and population growth, is a key driver of the petrochemical sectorproductioncenter. big projects likeMade in IndiaAatmanirbhar Bharat Abhiyan provides government guidance to the sector and creates an enabling environment to attract further investment. The advanced integration of the Indian oil industry into petrochemicals and later polymer derivatives is a potential game changer. It will increase the availability of raw materials and the safety of intermediate products in the downstream polymer industry, leading to value maximization of the entire polymer molecular chain.

Where is the Indian petrochemical industry today?

The petrochemical industry is an ideal industry for entrepreneurshipMade in IndiaGiven the strategic importance of petrochemical feedstocks and intermediates, the Aatmanirbhar Bharat Abhiyan strategy. In the past, Indian petrochemical companies have expanded their business portfolio in the context of existing refineries to improve net profit margins. Therefore, the focus is more on the use of available oil as a feedstock, the use of simple technologies, and the production of basic petrochemical feedstocks, namely ethylene, propylene, butadiene, and aromatics. Investments in capacity expansion by Indian petrochemical companies have boosted confidence across the basic petrochemical polymers industry. Petrochemical intermediates form a key chain of the Indian chemical industry because they are the main raw materials for the production of specialty chemicals that are essential for the production of almost all consumer goods and technologies.
product. Key polymer intermediates include ethylene oxide, propylene oxide, polyols, phenol, styrene, and rubber derivatives, which are used in the production of various consumer products.

Domestic refineries in India have increased petrochemical capacity to produce polymer feedstocks in response to pressure from a flatter refining gross margin curve and more resilient revenue streams. India has the capacity for close to 20 refineries and petrochemical complexes by 2035 to meet the increasing plastic consumption needs of our rapidly growing population. Configurations may include co-location or integrated facilities or investment in stand-alone NGL feedstock crackers with different levels of operational integration. Even if the ownership is different, the steam cracker and refinery are located in the same industrial zone as the SEZ, which saves indirect product transfer costs, corporate overhead, personnel costs, increasing synergies in the supply of public services and logistics.infrastructureThe latest direct crude-to-chemical (COTC) technology is gaining popularity due to high margins
Products such as olefins or aromatics. Some recent successful COTC plants are located in China and the Middle East, including ExxonMobil, Hengli, Yanbu, etc.

While India is self-sufficient in basic petrochemicals and exports significant amounts, there is a severe shortage of petrochemical intermediates or derivatives, leading to import dependency of up to 50%, which is quite high compared to the manufacturing industry. of chemicals. The time has come for downstream Indian companies to invest in the development of polymer intermediates through capacity expansion or joint ventures at home and abroad. Lack of growth in petrochemical intermediates has made Indian companies dependent on imports, leading to cumulative losses of USD 18-200 billion by 2030 due to high import bills and missed growth opportunities . On the other hand, the downstream petrochemical industry, that is, chemical specialties, will represent more than 50% of chemical exports in 2022, mainly agrochemicals, paints and pigments. Due to the cost advantages of emerging markets, especially India and China, the advantages of global production have been significantly passed on to the developed specialty chemical industry. In addition, many global companies are looking to optimize their supply chains and explore opportunities to move closer to Asian demand centers, such as India.

The petrochemical intermediates market in India is driven by the growth of downstream industries such as plastics, synthetic fibers and rubber, and the growing demand for high performance materials in various end-use applications such as automotive, construction and textiles. It is expected to grow steadily over the next several years to fill the gap between the basic petrochemical and specialty chemical industries. Companies operating here need to expand production capacities, invest in research and development, establish strategic partnerships and acquisitions to strengthen their position in the market. The availability of skilled labour, favorable government policies and growing manufacturing industry are expected to further fuel the growth of the petrochemical intermediates market in India.

India joins more than 150 countries in the movement to ban single-use plastics, including nationwide bans on certain items and initiatives to promote alternatives and recycling. Studies have shown that this plastic releases harmful chemicals, such as bisphenol A, into the ecosystem. Microplastics are smaller plastic particles that are created when single-use plastics break down and can contaminate water and food sources. Although challenges remain, the Indian government
These efforts help raise awareness of the issue and encourage positive behavior changes in individuals and businesses.

Political support from the Government of India

GoI initiatives such as Make in India andindian skill"The growth of foreign investment, foreign branding and promotion of chemical production has been encouraged, which has boosted the demand for petrochemical products. A series of policy measures includeNational petrochemical policy(NPP) 2007, Hydrocarbon Vision 2030 2016, 100% FDI in the petrochemical sector through the automatic route and Production Linked Incentives (PLI) 2021 were approved to support the development of the petrochemical industry in the country. Multiple infrastructure support has been developed, including petrochemical hubs such as the Petrochemical, Chemical and Petrochemical Investment Region (PCPIR), which will provide the industry with world-class infrastructure. In addition, steps have been taken to improve the supply of raw materials, including the development of new natural gas pipelines and the expansion of the country's refining capacity. Research and development in the petrochemical intermediates industry is also increasingly focused on developing innovative products that are more sustainable and environmentally friendly. This is expected to lead to the development of a more advanced and competitive local petrochemical industry. The government offers several tax incentives to the petrochemical industry, including exemptions or reduced rates of excise duties, customs duties, and value-added tax (VAT) on certain petrochemical products such as polymers, plastics, and synthetic fibers. Tax rates for these petrochemicals may vary depending on government policy objectives and economic conditions. However, they are an important source of revenue for the state and play an important role in shaping the competitiveness of the country's petrochemical industry.

The September 2022 revision of the Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) policy is a welcome step. The revised PCPIR policy is expected to have a significant impact on the Indian economy, attracting investment and creating jobs in the industry. It will boost investment in the industry, transform India into a petrochemical manufacturing hub for domestic and international markets through high-quality infrastructure and create a business-friendly competitive environment. It is expected to attract more than $420 billion in co-investment between now and 2035. The policy will guide completion prioritization of existing projects, streamline processes to remove bottlenecks, and develop specific cluster integration strategies. Guarantees of 20% financing of the sustainability gap have been implemented for infrastructure projects and smart public services. The revised PCPIR policy is expected to be a game changer for the petrochemical industry in India and its success will undoubtedly have a significant impact on the country's economy and development.

The effect of the Free Trade Agreement (FTA) on the Indian petrochemical industry will depend on the specific terms of the agreement. While India is a net exporter of man-made, aromatic and olefin fibres, India is a net importer of polymers and intermediate fibres, with imports increasing over time. Imports, attracted by tariff reductions and trade liberalization, have exceeded domestic production, threatening the financial viability of new and existing investment. Free trade agreements have led to an influx of cheap petrochemicals from other countries into India, creating a huge dumping channel. This could lead to a decline in national production and employment. Therefore, it is imperative that policymakers act on the likely impact of each new agreement that is signed. However, free trade agreements have their advantages and disadvantages. Therefore, it is important to review policies from time to time, institutionalize FTA regulatory committees, exclude key petrochemicals sensitive to domestic industries, etc.

In addition, the increasing focus on safe, sustainable and environmentally friendly petrochemical production is driving the development of new technologies and innovations in the industry. Bold measures such as the introduction of the Chemicals (Management and Safety) Regulations (CMSR) and Extended Producer Responsibility (EPR) Regulations have been implemented to promote responsible chemicals management practices. In addition, the government is streamlining the basic customs duties imposed on raw materials used by domestic manufacturers. These initiatives aim to create a safer and more sustainable petrochemical industry, which is critical to India's long-term economic growth and development.

the way to follow

The Indian petrochemical industry is on the brink of significant growth. This is evidenced by several factors, such as impressive investment returns in financial markets, India's demographics, growing wealth, and its global position. This presents a lucrative opportunity for petrochemical companies to supply the domestic market, which could lead to import substitution and foreign exchange savings. The PLI plans to allocate Rs 1.97 trillion to boost vital end-use industries including pharmaceuticals, telecommunication, automotive, electronics, mobile phones, medical devices and textiles. This is expected to further boost the demand for chemical and petrochemical products in the country. Strategic global partnerships and collaborative programs with governments are also key to boosting the industry. Chemicals and petrochemicals contributed almost 10 of 17 industriesUnited Nations Sustainable Development Goalsmake 2030.

In addition, the petrochemical industry must play an important role in promoting a circular economy through efficient design, reuse and recycling of materials, as well as innovation and technology. This requires embracing Industry 4.0 to enhance the benefits of existing technologies while maintaining global security standards. In the coming days, three themes will be central: accelerating action on sustainability, innovations for the decarbonisation of the economy and the growth of new end-user segments. India's petrochemical industry can play a key role in facilitating the transition to a circular economy and exploring opportunities for green chemicals. Overall, with the right policy and investment support, the petrochemical industry can contribute significantly to the goal of making India a $5 trillion economy by 2024-25.

[This article was written by Anurag Wasnik, Head of Innovation, Atal Innovation Mission, NITI Aayog; Debasish Bera, Senior Manager (Energy), Strategy and Consulting, Accenture]