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India is the third largest producer of chemicals in Asia by volume. It is also the fourth largest producer of agrochemicals and the sixth largest producer of chemicals in the world. The Indian chemical industry accounts for nearly 3.4 percent of the global chemical industry by volume. 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 petrochemicals, fertilizers, paints, varnishes, gases, soaps, perfumes, toiletry, and pharmaceuticals.

The exports from chemical industry recorded y-o-y growth of 2.86 percent from US$ 43.76 billion in 2018-19 to US$ 45.01 billion in 2019-20. Exports from the industry accounted for 14.37 percent of the total exports from India. Within the chemical industry, exports of dye intermediates witnessed the largest decline of (-) 28.82 percent in 2019-20 as compared to corresponding period of the previous year, followed by fertilizers manufactured (-23.41 percent), organic chemicals (-10.56 percent), graphite explosives and accessories (-7.13 percent) and paint, varnish and allied products (-4.45 percent). Essential oils, on the other hand, witnessed substantial growth of 19.30 percent in 2019-20 but accounted for only 0.07 percent of the total exports. Drug formulations and biologicals which accounted for the highest share (5.09 percent) amongst all chemical products in 2019-20 also registered growth of 10.78 percent as compared to the previous year.

Export of Chemical and Chemical Products

(In US$ Million)

Product 2018-19 2019-20 Y-O-Y Growth % Share in Total Exports from India (2019-20)
Fertilizers Crude 11.85 12.65 6.7 0
Fertilizers Manufactured 136.84 104.81 -23.41 0.03
Bulk Drugs, Drug Intermediates 3,911.14 3,885.84 -0.65 1.24
Dye Intermediates 270.59 192.59 -28.82 0.06
Dyes 2,538.45 2,687.28 5.86 0.86
Drug Formulations, Biologicals 14,388.80 15,940.40 10.78 5.09
Agro Chemicals 3,156.57 3,350.21 6.13 1.07
Inorganic Chemicals 1,072.88 1,036.88 -3.36 0.33
Organic Chemicals 9,326.52 8,341.90 -10.56 2.66
Other Miscellaneous Chemicals 929.62 1,055.16 13.5 0.34
Cosmetics and Toiletries 1,671.95 1,709.33 2.24 0.55
Essential Oils 171.8 204.96 19.3 0.07
Residual Chemical and Allied Product 5,259.64 5,620.26 6.86 1.79
Paint, Varnish and Allied Products 790.33 755.13 -4.45 0.24
Graphite, Explosives and Accessories 124.34 115.48 -7.13 0.04
Chemicals & Related Products 43,761.32 45,012.89 2.86 14.37
Source: Ministry of Commerce and Industry

FDI of 100 percent is allowed under the automatic route in the chemicals sector, subject to all the applicable regulations and laws. FDI in the chemicals segment (other than fertilizers) stood at US$ 17.63 billion during the period April 2000 to March 2020, accounting for 4.37 percent 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 such as availability of key feedstock, infrastructure deficiencies, 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.

However, the industry has the potential to overcome the abovementioned challenges through adoption of alternate feedstock, increasing investment in R&D and achieving scale through collaboration. Further, the sector is likely to perform well 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.


Select Government Incentives

  • The Ministry of Chemicals and Fertilizers launched Direct Benefit Transfer in an attempt to change the mechanism of transferring subsidies launched by the Government of India. The first phase of DBT system in Fertilizers (DBT 1.0) envisaged the release of 100 percent subsidy on various fertilizer grades to the fertilizer companies on the basis of actual sales made by the retailer to the beneficiaries. The second phase of Direct Benefit Transfer of Fertilizer Subsidy (DBT 2.0) is launched to explore the feasibility of direct cash transfer to farmer’s accounts.Three new technologies have been introduced for implementation of the same.
  • To develop skillful manpower in the industry, the government has introduced various research entities, schemes and councils; few of which are mentioned below:
    • Provision of Grant-in-aid to educational/research institutes for setting up Centre of Excellence (CoE) with a view to improve existing petrochemicals technology and promote development of new applications of polymers and plastics.
    • Under the Chemicals Promotion Development Scheme (CPDS), government provides Grant-in-aid for creation of knowledge products through studies, survey, data bank, promotion materials etc. to facilitate development of the sector.
    • To strengthen civil and technical infrastructure, research and development capacities and academic and training initiatives, budgetary allocations are made towards CIPET (Central Institute of Plastic Engineering and Technology).