India’s Chemical Industry Expected to Reach US$304 Billion by 2025

India’s thriving chemical industry owes its success to escalating demand and supportive government policies. India’s chemical sector is ranked the sixth-largest globally by output and third in Asia. Contributing a substantial seven percent to India’s GDP, the chemical industry is a key supplier to diverse industries like textiles, pharmaceuticals, and agrochemicals. Government initiatives, including chemical development schemes, and plastic parks, are fueling investment opportunities. Notably, the chemical industry allows 100 percent FDI through the automatic route, except for select hazardous chemicals.

India’s chemical industry is thriving due to rising demand and favorable government policies. India boasts an impressive position as the sixth-largest chemical producer globally and ranks third in the Asian region.

The chemical industry plays a crucial role in India’s economy, contributing a significant 7 percent to its GDP. It provides several building blocks and raw materials for various industries, including textiles, paper, paints, soap and detergents, pharmaceuticals, and agrochemicals.

To encourage investments, the government has launched various policies, such as the chemical promotion and development scheme, Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIRs), and plastic parks.

Furthermore, the Government of India is considering launching a production-linked incentive (PLI) scheme for the chemical and petrochemical industry to boost domestic manufacturing and exports. This scheme is designed to provide companies with incentives based on the increase in sales from products manufactured within the country.

In the Union Budget 2023-24, the central government allocated US$20.93 million to the Department of Chemicals and Petrochemicals. This allocation underscores the government’s commitment to support and further develop the chemical sector.

Read: Prospects in India’s Agrochemical Sector

Chemical industry overview

The Indian chemical industry is expected to reach US$304 billion by 2025, registering a compound annual growth rate (CAGR) of 9.3 percent.

The chemical industry in India is valued at a substantial US$220 billion and experts predict that it could reach an astonishing US$1 trillion by 2040.

By 2025, the demand for chemicals in India is expected to grow by 9 percent per annum, and the chemical industry is anticipated to contribute US$383 billion to India’s GDP by 2030. This increase is expected due to the rise in demand in the end-user segments for specialty chemicals and petrochemicals segment.

According to Invest India, the market size of the chemical and petrochemical sector in India is US$178 billion.

The Indian chemical industry covers around 80,000 commercial products, employees over two million people, and makes up 3.4 percent of the global chemical industry.

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India holds a strong position in international trading of chemicals and ranks ninth in exports and sixth in imports at a global level (excluding pharmaceuticals). India accounts for 2.5 percent of the world’s global chemical sales and exports to more than 175 countries worldwide. The major export destinations are the United States, China, and new destinations—Turkey, Russia, and Northeast Asia (China, Hongkong, Japan, Korea RP, Taiwan, Macao, and Mongolia).

From April 2022- March 2023, exports of organic chemicals (US$9.64 billion) and inorganic chemicals (US$2.17 billion) were estimated at US$17.19 billion. India’s chemical industry holds significant appeal to investors owing to growing demand, which is attracting investment accompanied with policy support by the government. A network of 200 national laboratories and 1,300 R&D centers provides a strong base to the Indian chemical industry to drive innovations.

Petrochemical sector and polymers   

India is making significant strides in this sector, with an estimated investment of INR 8 trillion (equivalent to US$107.38 billion) expected by 2025 in chemicals and petrochemicals. The demand for petrochemicals in India is set to grow at a 7.5 percent rate between 2019 and 2023, and the demand for polymers is expected to grow even faster at eight percent.

Notably, India ranks as the third-largest consumer of polymers globally and is projected to consume around 60 million tons of polymers by the year 2040. This indicates a promising and robust future for the chemical, petrochemical, and polymer industries in India and worldwide.

Fertilizers

Between 2023 and 2028, the India fertilizer market is expected to grow at a CAGR of 4.7 percent, reaching a projected value of US$1160.18 billion.  In 2021, the fertilizer market in India reached a value of US$ 841.2 billion.

Increased demand for food production and improvements in agricultural processes are driving market growth. 

The fertilizer market is based on product type, segment, formulation, application and region.

Snapshot of Fertilizer Market in India

Within the fertilizer market, two primary types stand out: chemical fertilizer and biofertilizer. Notably, chemical fertilizers hold a significant portion of the market share, establishing their dominance.

Further segmentation is observed based on specific categories, including complex fertilizers, DAP, MOP, urea, and SSP. Presently, DAP emerges as the most prominent type, commanding a substantial portion of the market share.

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A categorization based on formulation distinguishes between liquid and dry fertilizers. The lion’s share of the market belongs to the dry fertilizer segment, representing the forefront of this division.

Similarly, based on application, the market is classified into farming and gardening segments. At present, farming applications assert their supremacy, capturing the larger portion of market demand.

Geographical segmentation divides the market into four regions: North India, South India, East India, and West India. Within the Indian fertilizer market landscape, it’s worth noting that North India takes the lead as the market frontrunner.

Specialty chemicals

Specialty chemicals are distinctive compounds formulated to fulfil specific purposes, encompassing applications like pharmaceutical production, enhancement of cosmetic products, and optimization of industrial processes. The creation of these chemicals often involves advanced research and development efforts to cater to their specialized functions. Their significance is paramount across various industries, offering distinct attributes that conventional chemicals struggle to replicate.

As per industry reports, the specialty chemicals sector in India accounts for 22 percent of the chemicals and petrochemicals market, with projections indicating a potential doubling of its market share by 2027. Industry players are proactively pursuing strategies such as import substitution and venturing into exports to expedite their business expansion.

Globally, specialty chemicals contribute to 20 percent of the colossal US$4 trillion chemical industry. India’s specialty chemicals market is poised to experience a remarkable growth trajectory, with an anticipated CAGR of 12 percent, propelling it to a valuation of US$64 billion by 2025. This surge will be powered by robust demand, expected to achieve a CAGR ranging between 10 to 20 percent, within export and end-user sectors.

The upswing in demand from end-user domains like food processing, personal care, and home care is steering the diversification and progression of various segments within India’s specialty chemicals market.

Agrochemicals

According to Expert Market Research (EMR), India’s agrochemicals market is projected to grow rapidly at an 8.6 percent CAGR between 2021 and 2026, reaching US$7.4 billion. Around 50 percent of agrochemicals are exported globally from India. The country ranks as the fourth-largest agrochemical producer, trailing behind the US, Japan, and China. Additionally, India is the thirteenth-largest exporter of pesticides and disinfectants. The growth in agrochemical demand is mainly driven by the agricultural sector. The market’s expected expansion is supported by factors such as low-cost manufacturing, technically trained manpower, seasonal domestic demand, competitive pricing, overcapacity, and a strong presence in generic pesticide manufacturing.   

Key players

Investment in India’s chemical industry

100 percent FDI is allowed in the chemical sector under the automatic route, with the exception of a few hazardous chemicals.  Industrial licensing is approved in most sectors, except for certain hazardous chemicals like acetone, acrylonitrile, aldrin, and alkyl phthalate among others which are capable of causing major accident hazards.

Government policies

The Indian Government actively supports the chemical industry, prioritizing growth in R&D capacity, manufacturing under the Make in India or Atmanirbhar Abhiyan initiatives, and reductions in the basic customs duty on several products.

We list some of the industry-focused policy efforts below.

1. 2034 vision for chemicals and production-link incentive scheme: A 2034 vision for the chemicals and petrochemicals sector has been set up by the government to explore opportunities to improve domestic production, reduce imports, and attract investments in the sector. The government plans to implement a production-linked incentive system with 10-20 percent output incentives for the agrochemical sector to create an end-to-end manufacturing ecosystem through the growth of clusters.
2. Petroleum, Chemicals, and Petrochemicals Investment Regions: India has established Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs) as clusters with transparent policies and facilities. These regions offer high-class infrastructure and a competitive environment for business establishment. Each PCPIR covers 250 sq km and includes manufacturing facilities, logistics, and services. Under the new PCPIR Policy 2020-35, it has been targeted to attract a combined investment of INR10 trillion (US$142 billion) by 2025, INR 15 trillion (US$213 billion) by 2030 and INR 20 trillion (US$284 billion) by 2035.The Ministry of Chemicals & Petrochemicals has set up four PCPIRs in Dahej (Gujarat), Vishakhapatnam-Kakinada (Andhra Pradesh), Paradeep (Odisha), and  Cuddalore and Nagapattinam (Tamil Nadu). The full realization of these PCPIRs is expected to cost INR 7.63 trillion (US$92.01 billion).
3. National Policy on Petrochemicals: The National Policy on Petrochemicals aims to achieve sustainable development in the petrochemical industry by promoting research, human resource planning, and a mission-mode approach. To improve existing technology and research, a program on Petrochemical Development is being implemented, including the establishment of Centre(s) of Excellence (COE) in educational and research institutions. COEs will focus on updating and modifying products for new uses, developing innovative technology, improving production processes, and developing biopolymers and biodegradable polymers. These internationally recognized centers will provide authoritative, strategic, and timely information to organizations and companies for the development and implementation of their projects, focusing on path-breaking R&D efforts. COEs have been established in Pune, Chennai, Delhi, Bhubaneshwar, Roorkee, and Guwahati.
4. Plastic Parks: The Department of Chemicals and Petrochemicals has devised a plan to consolidate and synergize Indian plastics industry units, thereby increasing investment, production, export, and employment. The scheme will employ a cluster development approach, with the government contributing up to 50 percent of project costs up to INR 4 million (US$48,240). The State Government or the State Industrial Development Corporation will cover the remaining costs. Under the Scheme, 10 Plastic Parks have been approved in the States of Madhya Pradesh (two), Odisha, Jharkhand, Tamil Nadu, Uttarakhand, Chhattisgarh, Assam, Uttar Pradesh, and Karnataka.
5. Chemicals Promotion Development Scheme: The Chemicals Promotion Development Scheme (CPDS) promotes and develops the chemical and petrochemical industries by providing financial support for seminars, conferences, exhibitions, conducting studies/consultancies, and analyzing critical issues affecting the chemical and petrochemical industries.
6. Central Institute of Plastic Engineering and Technology: The Central Institute of Plastic Engineering and Technology (CIPET) was established to train personnel in various disciplines of Plastics Engineering and Technology. The CIPET offers a wide range of activities and programs centered on skill development, technology support, academics, and research.
7. PLI Scheme for National Programme on Advanced Chemistry Cell (ACC) Battery Storage: The Production Linked Incentive (PLI) Scheme, approved on 12th May 2021, aims to enhance India’s manufacturing capabilities and exports in Advance Chemistry Cell (ACC) and Battery Storage. It targets the establishment of 50 Giga Watt Hour (GWh) capacity manufacturing facilities over 5 years, incentivizing domestic and international players to set up competitive ACC battery units in India. Subsidies are provided based on applicable subsidy per KWh and percentage of value addition achieved on actual sales for manufacturers with production capacities ranging from 5 GWh to 20 GWh.

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