Indian petrochem sector to grow stronger from H2-14

04-Jul-14

India Petrochemicals Report anticipates stronger market growth from H214, coinciding with the completion of many overdue projects as per Business Monitor Index. The main challenge facing India's petrochemicals business environment centres around its institutional weaknesses. High barriers to entry, the pervasiveness of corruption, excessive red tape and the glacial pace of project execution are all major obstacles to petrochemicals projects over the medium term. Unless we see a major improvement in the country's reform outlook, particularly in relation to developing petrochemicals zones and opening up to foreign investment, multinationals could increasingly become put off by a challenging operating environment in spite of attractive growth prospects. The new government has a comfortable parliamentary majority and BMI expects a period of regulatory change. While Prime Minister Narendra Modi has overseen strong growth in petrochemicals capacity in Gujarat while he was the state's chief minister, his reform efforts will meet with stiff resistance from state governments controlled by opposition parties. This is likely to affect land acquisition and environmental approvals where state-level governments can play a crucial role. Moreover, governments at the centre also tend to focus infrastructural spending on the states they control. As such, states like Tamil Nadu, Orissa, West Bengal, Assam and Karnataka, where petrochemicals zones are planned, may lose out to states where the ruling BJP seeks to take or maintain control.