What are the attractiveness and risks of Indian chemical industry investment?

As a populous country second only to China, India is one of the fastest growing countries in the world. The economies of China and India are highly complementary and intertwined, and the economic and trade exchanges between the two countries are mutually beneficial and win-win. In 2018, the relationship between the two countries "turned the old page and wrote a new chapter"; at the end of 2019, the leaders of the two countries held the second informal meeting in India, injecting new momentum into the rapid development of bilateral relations. In 2020, Sino-Indian relations will be tense. India continues to harass the Chinese border. After the two sides have fully exchanged views, the current border situation has eased. In terms of economy and trade, India announced that it will inspect all power equipment purchased from China to confirm whether there are malware or Trojan horse viruses; Ministry of Electronics and Information Technology of India Announcing the prohibition of 59 Chinese-origin apps including TikTok and WeChat from being used in India.

However, as India’s largest source of imports, China has continued to develop bilateral economic and trade cooperation for many years. The scale of investment has gradually expanded, and the areas of cooperation have continued to deepen. Although there are certain political risks in the future cooperation between the two countries, the potential is still huge.


Investment attractiveness of India's chemical industry

1. India's GDP volume is relatively large in 2019, but the growth rate has declined

In 2019, India’s GDP growth rate was 5.3%, and its nominal GDP was Rs 20.81 trillion, equivalent to US$2.85 trillion, ranking fifth in the world. The decline in economic growth is mainly due to the tightening of the financial environment, high international oil prices, rising trade protectionism, and the overall slowdown in external demand, which have a certain negative impact on the Indian economy. The IMF forecast in June this year that India’s economic growth rate in 2020 is expected to be significantly reduced to -4.5%. Even if fiscal and monetary policy stimulus are both implemented, the strong measures taken to prevent the spread of the epidemic will still severely curb economic growth. In addition, the slowdown in global economic growth and the spillover effect of the pressure on the financial balance sheet will also hinder the recovery of Indian economic activities.

From the perspective of economic structure, the service industry is India's pillar industry. In 2019, India’s service industry accounted for about 50% of GDP, an increase of 1 percentage point year-on-year; industrial added value accounted for about 24.9% of GDP, an increase of 1.7 percentage points year-on-year; agricultural added value accounted for about 16.0% of GDP, an increase of 0.6 Percentage points; the value added of manufacturing accounted for 13.7% of GDP, a decrease of 0.7 percentage points year-on-year. From the perspective of the tertiary industry alone, it is close to the level of developed countries, but the proportion of agriculture is still as high as 1/4.


2. Rich in mineral resources

India is rich in mineral resources, with nearly 100 kinds of mineral deposits. The output of mica is the largest in the world, and the output of coal and barite is the third in the world. Statistics from the Ministry of Mines of India in 2012 showed that the output of barite and talc/pyrophyllite in India was 1.739 million tons and 1.184 million tons, accounting for 17.9% and 15.2% of global output, ranking second in global output; coal/lignite The output of chromite, chromite, and zinc ore were 604 million tons, 2.95 million tons, and 704,000 tons respectively, accounting for 7.8%, 11.1% and 5.6% of global output, ranking third in global output. Among the major minerals, steel output was 78.3 million tons, accounting for 5.1% of global output, ranking fourth; aluminum output was 1.675 million tons, accounting for 3.6% of global output, ranking eighth; iron ore output was 136 million Tons, accounting for 4.1% of global output, ranking fifth; copper output is 493,000 tons, accounting for 2.4% of global output, ranking tenth.


3. India's chemical industry is diversified, and some chemical products are highly dependent on imports

With more than 80,000 chemical products, India is the sixth largest chemical producer in the world and the third largest chemical producer in Asia. India’s chemical products are mainly basic chemicals and petrochemicals, and the specialty chemicals industry is still in its infancy. In 2018, India's chemical product revenue accounted for 2.66% of the world, and the average growth rate from 2014 to 2018 was close to 9%, of which the growth rate of pharmaceutical intermediates could reach 10% to 12%.

From 2014 to 2018, the compound annual growth rate of India's main chemical product output was 4.78%. The output of basic chemicals in 2018 was 14.59 million tons, including alkaline chemicals, organic chemicals, inorganic chemicals, pesticides, dyes and pigments, of which alkaline chemicals accounted for up to 70%; petrochemicals accounted for 58%, including synthetic fibers, polymers, rubber, detergent intermediate products, high-performance plastics, of which polymers account for up to 62%.

Indian chemical products are mainly concentrated in benzene, p-xylene, synthetic fiber, polypropylene, o-xylene, viscose fiber, etc., and the self-sufficiency of polyvinyl chloride, purified terephthalic acid, ethylene glycol, styrene and polyethylene is insufficient. The total demand for PVC in India reached 2.42 million tons, but India’s domestic production was only 1.26 million tons, and the net import volume was 1.15 million tons; the average import of polyethylene monomers and polyethylene products (LLDPE, LDPE, HDPE) was dependent on The degree is about 45%.


4. China-India Economic and Trade Cooperation Development

In 2019, the bilateral import and export volume of goods between China and India was US$92.8 billion, a year-on-year decrease of 2.8%. Among them, India’s exports to China were US$18 billion, a year-on-year decrease of 4.5%; India’s imports from China were US$74.8 billion, a year-on-year decrease of 2.4%. India’s imports from China mainly include electromechanical, audio-visual equipment and its parts and accessories, electrical machinery, electrical, audio-visual equipment and its parts and accessories, nuclear reactors, boilers, mechanical appliances and parts, chemical industry and related products. The chemical industry and related products accounted for 17% of the import volume, making it the fourth largest imported product.


5. Preferential Policies for Foreign Investment in India

India’s preferential policies for foreign investment are mainly reflected in regional preferences, export preferences and special zone preferences. The main industries that currently attract foreign direct investment in India are financial and non-financial services, pharmaceuticals, telecommunications, metallurgy, and power. Local state governments mainly provide investment promotion policies centered on direct investment rebates and tax incentives. The final incentives mainly depend on the negotiations between enterprises and state governments. Leading companies with high investment, strong employability and good demonstration effects usually take the lead, triggering "internal competition" with preferential policies in various states.


Chinese enterprises "going out" investment case

Longjian Road and Bridge Co., Ltd. (abbreviated as "Longjian shares"): In 2019, won the bid for the four-lane national highway 361 project in Bharatmala Pariyojna, Maharashtra Province, India, with a total project cost of 41.047 billion rupees, equivalent to approximately 3.89 billion yuan yuan. MEP company undertakes 30% of the engineering volume, and Longjian shares the remaining 70%. After the completion of the construction, the operation and maintenance of the project will be in charge of MEP.

Dalian Wanda Group: In 2016, it undertook the construction of an industrial park in Haryana State in northern India. The project cost is estimated to be as high as 10 billion U.S. dollars. After completion, it will become the largest industrial park in India.

Sany Heavy Industry: In 2016, in order to expand the production of construction machinery, it plans to invest 1 billion US dollars in India in the next ten years.

Greenland investment projects: In 2015, invested in a large food industrial park in Jiangjiapur West Mon State; in 2016, invested in a hydropower project in India and formed a joint venture with the Naga government. Greenland Energy holds 76% of the shares. The Dikhu River and Yangyu River are under construction for the construction of 186 MW hydropower stations. The total expenditure on the tributaries of the Brahmaputra River in Naga is approximately US$300 million in 40 years.

Sinoma International: In 2015, it invested USD 25.18 million to establish a wholly-owned subsidiary, Sinoma International (Hong Kong) Co., Ltd., and acquired 68% of the shares of LNVT in India through equity acquisition and capital increase of 150 million yuan.


Investment risks in the Indian chemical industry

1. Political risk

India has serious domestic corruption, low government efficiency, and strict approvals. In addition, the historical border issue between China and India and the US-Japan strategy will also increase the political risks of Chinese companies investing in India.


2. Market risk

At present, the number of Chinese-funded enterprises going to India to carry out capacity cooperation is increasing, but the industry is relatively concentrated, and the understanding of the market is not comprehensive. For example, Chinese mobile phone companies have aggressively entered the Indian market, leading to fierce competition among Chinese companies. In addition, some Chinese companies plan to invest in electricity in India, but India's coal supply is tight, the on-grid electricity price is low, and profits are difficult to guarantee. For this reason, when companies go to India to carry out capacity cooperation, they should first consider the actual needs of India and the development of Chinese industries in India, and overall consider the risks of investment cooperation, and do what they can.


3. Economic risks

The economy is growing rapidly, but the degree of development is low, and the business environment is poor. Inflation has improved significantly, but there is still a risk of rebound. Trade has been in deficit for a long time.


4. Legal risks

The legal environment in India is completely different from that in China. Investment in India is subject to dual laws and regulations of the federal government and local governments, and there are policies to diversify risks; the "compulsory license" system in Indian intellectual property law requires special attention from companies.


5. Other risks

India has prominent religious and ethnic contradictions and frequent separatist activities. In recent years, there have been many terrorist attacks and serial bombings in Mumbai, Delhi and other places, causing heavy casualties and property losses. Chinese citizens who go to India for work, inspections and visits should pay close attention to the local situation and strengthen security precautions.