Chemicals Industry



The chemical industry plays a vital role in the growth of Indian economy, accounting for nearly 2.1 percent of the Gross Domestic Product (GDP). It is one of the most diversified of all industrial sectors covering an array of more than 70,000 commercial products. The industry is the mainstay of industrial and agricultural development of the country and provides building blocks for several downstream industries like chemical and other related products, petrochemicals, fertilizers, paints, varnishes, gases, soaps, perfumes, toiletry, and pharmaceuticals.

The production of major chemicals in India have increased from 8380 thousand tonnes during 2007-08 to nearly 9884 thousand tonnes during 2015-16 increasing at CAGR of 2.1% during this period. The production of major chemicals during 2016-17 (up to Jan 17) was estimated at 8478 thousand tonnes.


Exports of chemicals from India
Year Inorganic Chemical Organic Chemical Tanning and Dye Extracts Insecticides and Fungicides Overall Chemical Exports
  HS Code 28 HS Code 29 HS Code 32 HS Code 3808  
2011-12 1793.9 11693.5 1947.9 1427.9 16863.2
2012-13 1318.7 12105.6 2089.8 1740.1 17254.1
2013-14 1364.2 12017.6 2547.6 1922.3 17851.6
2014-15 1429.9 11948.9 2818.6 1949.9 18147.3
2015-16 1207.3 11509.3 2471.3 1963.0 17151.0
2016-17 1363.5 11688.6 2564.0 2136.7 17752.8
Source: DGCIS
Export destinations of Inorganic Chemicals from India
Country Export Value (US$ mn) Share (%)
UAE 208.0 15.3
China 122.1 9.0
Iran 85.1 6.2
USA 70.4 5.2
Egypt 69.0 5.1
Malaysia 64.4 4.7
Turkey 41.7 3.1
Bangladesh 39.7 2.9
Korea 37.9 2.8
Japan 36.6 2.7
Total 1363.5 100.0
Source: DGCIS

Export destinations of Organic Chemicals from India
Country Export Value( US$ Mn) Share (%)
USA 1393.7 11.9
China 882.2 7.5
Germany 535.0 4.6
Saudi Arabia 419.2 3.6
Japan 413.6 3.5
Indonesia 374.7 3.2
Netherlands 350.1 3.0
Korea 348.3 3.0
Spain 336.9 2.9
Brazil 332.5 2.8
Total 11688.6 100.0

Export destinations of Tanning & Dye Extracts from India
Country Export Value( US$ Mn) Share (%)
USA 203.7 7.9
Bangladesh 181.6 7.1
Germany 167.0 6.5
Turkey 150.3 5.9
China 120.8 4.7
Brazil 106.4 4.1
Italy 99.9 3.9
Indonesia 96.8 3.8
Thailand 95.7 3.7
Pakistan 87.2 3.4
Netherlands 73.5 2.9
Total 2564.0 100.0

Export destinations of Insecticides & Pesticides from India
Country Export Value( US$ Mn) Share (%)
USA 365.9 17.1
Brazil 363.3 17.0
Japan 104.9 4.9
France 78.2 3.7
Belgium 62.3 2.9
China 58.1 2.7
Vietnam 56.7 2.7
Australia 55.9 2.6
Bangladesh 55.8 2.6
Indonesia 50.9 2.4
Total 2136.7 100

Foreign Direct Investments

100% Foreign Direct Investment (FDI) is allowed under the automatic route in the chemicals sector, subject to all the applicable regulations and laws. FDI in the chemicals segment was approximately US$ 14 billion during the period April 2000 to June 2017, accounting for 4% of the total FDI inflows in the country.


Indian chemical industry is a diversified industry and is the mainstay of industrial and agricultural development of the country. The sector provides building blocks for several downstream industries. Government initiatives like CBEC’s Single Window Interface for Facilitating Trade (SWIFT), Make in India, and relaxation of environmental norms for the chemical industry will likely encourage the growth of chemical sector. However, the industry faces some serious issues like availability of key feedstock, infrastructure status, scale of operations, energy security and ease of doing business etc. These issues have hampered industry growth and it needs government interventions to achieve its true potential. Though, the industry may overcome these challenges through adoption of alternate feedstock, increasing investment in R&D and achieving scale through collaboration. Despite these challenges, the sector is likely to perform well in coming time on the back of higher demand from Agrochemicals and Speciality Chemicals segments. Significant growth in Petrochemicals segment too will provide the Chemical sector the much needed fillip.



Budget announcements for 2016-17:

  • Custom duty on Ethyl Alcohol/Ethanol has been reduced from 5% to 2.5%.
  • Custom duty on Capacitor Grades polypropylene granules or resins for the manufacture of capacitor grade plastic film (392) has been reduced from 7% to 0% (not produced in the country).
  • Custom duty on Acyclic Hydrocarbons Cyclic Hydrocarbons, Ethylene, Propylene etc. Benzene, Toluene (2901, 2902 except 2924300, 29025000) has been Rationalized from 2% to 2.5%.
  • Custom duty on Super absorbent polymer (SAP) imported for use in the manufacture of the Adult diapers has been reduced from 7% to 5%.
  • Custom duty on Ortho xylene for the manufacture of Phthalic Anhydride (29024100) has been reduced from 4% to 2%.
  • Excise duty on Epoxy resin, Vinyl ester adhesives, Hardener for adhesives resin, hardeners, Polyester infusion resin for rotor blades for Wind Operated Electricity Generators has been reduced from 12% to 6%.

R&D Incentives

Industry/private sponsored research programmes – a weighted tax deduction is given under Section 35 (2AA) of the Income Tax Act. A weighted deduction of 200% is granted to assess for any sums paid to a national laboratory, university or institute of technology, for specified persons with a specific direction, provided the said sum is used for scientific research within a programme approved by the prescribed authority.

Companies Engaged in Manufacture having an In-house R&D Centre

A weighted tax deduction of 2005 under Section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure incurred on scientific research and development. Expenditure on land and building are not eligible for deductions.


State Incentives

  • Apart from the above, each state in India offers additional incentives for industrial projects.
  • Incentives are in areas like subsidized land cost and relaxation in stamp duty exemption on sale/lease of land, power tariff incentives, concessional rate of interest on loans, investment subsidies/tax incentives, backward areas subsidies, special incentive packages for mega projects etc.



Export Incentives

  • Export promotion capital goods scheme.
  • Duty drawback scheme.
  • Merchandise Export from India Scheme.
  • Service Exports from India Scheme.



Area Based Incentives

Incentives for units in Special Economic Zones (SEZ)/National Investment and Manufacturing Zones (NIMZ) as specified in respective Acts or setting up projects in special areas like the North-east, Jammu & Kashmir, Himachal Pradesh & Uttarakhand.





REACH (EC 1907/2006) aims to improve the protection of human health and the environment through the better and earlier identification of the intrinsic properties of chemical substances. This is done by the four processes of REACH, namely the registration, evaluation, authorisation and restriction of chemicals. REACH also aims to enhance innovation and competitiveness of the EU chemicals industry.

"No data no market": the REACH Regulation places responsibility on industry to manage the risks from chemicals and to provide safety information on the substances.  Manufacturers and importers are required to gather information on the properties of their chemical substances, which will allow their safe handling, and to register the information in a central database in the European Chemicals Agency (ECHA) in Helsinki. The Agency is the central point in the REACH system: it manages the databases necessary to operate the system, co-ordinates the in-depth evaluation of suspicious chemicals and is building up a public database in which consumers and professionals can find hazard information.

The Regulation also calls for the progressive substitution of the most dangerous chemicals (referred to as "substances of very high concern") when suitable alternatives have been identified.


The Toxic Substances Control Act (TSCA) places requirements on those importing chemicals into, or exporting chemicals out of, the customs territory of the United States.Under TSCA section-13, exporters to USA are required to comply with TSCA regulations, and importers too have to certify the chemical before importing a chemical substance, mixture or article containing a chemical substance or mixture into the U.S. Importers must certify that imported chemical substances either comply with TSCA (positive certification) or are not subject to TSCA (negative certification).

For further details on Regulations applicable in various geographies, refer to this link: