The chain reaction that the chemical industry is having for the Indian economy

By Ritika Chauhan

The chemical industry is not only one of the oldest industries in India but also one of the fastest growing ones in the economy. For years, this industry has played the role of a driving engine for the manufacturing sector in the country. India is the sixth largest producer of chemicals in the world and third largest producer in Asia in terms of output. The Indian chemical sector is currently worth USD 150-155 billion and it is expected to double by 2025 if it continues to grow at the current rate of 8 to 10%. Cumulative FDI in the industry from April 2000 to June 2017 stood at US$ 13.972 billion and the export of chemicals stood at US$ 12.15 billion during the year 2016-17.

Indian chemical industry has always been a multi-product and a multi-faceted industry, based on the principle of diversification. The chemicals cover an array of more than 70,000 commercial products. The industry is diversified into a variety of factors such as the inorganic chemicals, drugs and pharmaceuticals, plastics and petrochemicals, pesticides, fertilizers and other agrochemicals, speciality and fine chemicals like dyes and paints, and many more. Speciality chemicals and agro-chemicals are the two fastest growing sectors among them.

Top chemical companies in India include Pidilite Industries Ltd, Tata Chemicals Ltd, UPL Ltd, Gujarat Fluoro Chemicals Ltd and others. Their units are widely spread all over the country with the industrial application and agricultural chemical industries being clustered around basic chemical industries.

Opportunities for the industry

The increase in demand for biodegradable polymers, performance plastics, and other value-added chemical products have opened many doors for the chemical industry. Environmental concerns and awareness have led to an increasing need for value-added chemical products in the market. The ‘Make In India’ initiative would also play a pivotal role in boosting the growth of the Indian chemical industry. Another opportunity comes with the increasing rate of development in countries of Africa, the Middle East, and Asia-Pacific like Iran, Mozambique and Myanmar, where India can set up its chemical plants to avail raw materials at cheap and affordable prices.  

Challenges for the industry

The restraints that the chemical industry is facing today include the availability of key feedstock, infrastructure status, the scale of operations, access to technology, energy security and ease of doing business. These issues have hindered industry growth and it needs government interventions to achieve its true potential. Adoptions of alternate feedstock, increasing investment in R&D and achieving scale through collaboration are some of the key levers that the industry can act upon to overcome these challenges. Other critical issues include negative attitude towards the plastics and petrochemical sector, the need to rationalise regulations related to the environment, issues related to FTAs (free trade agreements), etc.

As far as the impact of GST implementation on the chemical industry is concerned, there has been a positive feedback. The industry had long suffered from added taxation on their production capacity as well as their consumption demands. The older taxation ended up increasing the production costs resulting in the price-hike of the end products thereby making them unaffordable for gross consumption. However, GST implementation helps avoid double taxation at combined rates and keeps the rates of state-level tariffs consistent throughout the country. This allows chemical manufacturers to produce chemicals and supply them to different states without any additional taxable duties.

Future policies

Department of Chemicals and Petrochemicals is now focusing all its efforts to achieve the objective of making the Indian chemical industry a USD 300 billion industry by 2025. The industry is also targeting chemical exports of USD 18 billion by 2020. The department has announced that a draft chemical policy was being worked out such that it would aim at increasing the demand for these chemicals in the domestic market and at the same time reduce our dependency on the imports. This means that the department will focus on increasing the capacity of the industry to meet the internal needs.

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