Chemical & Petrochemical
  • Chemical Industry
    05 Aug, 2014

    Chemical Industry

    India emerges as one of the focus destinations for chemical companies worldwide due to high domestic demand, significant knowledge pool and favourable demographic dividend. Indian chemical sector ranks 6thin the world and 3rd in the Asia. It is also one of the largest industrial sectors in the Indian economy and an important employment generator. The Indian Chemical Industry comprises both small and large-scale units, and presently, there are about 40,000 chemical manufacturing units located in the country out of which about 80% are covered in the small scale sector. This sector provides employment to about 3.3 million people. There are no quantitative or other restrictions on the import of chemicals except for few chemicals which are covered under the obligations as per International Conventions. Indian chemical industry exports dyes, pesticides and specialty chemicals to the developed world and to the developing countries which form about 3% share in the global market and contributes significantly to the foreign exchange basket of the country. The fiscal concessions granted to small scale sector in mid-eighties led to the establishment of a large number of units in the Small Scale Industries (SSI) sector.

    Production of Selected Major Chemicals (Figures in '000MT)

    Sector 2006-07 2007-08 2008-09 2009-10 2010-11
    Alkali Chemicals 5269 5443 5442 5602 5981
    Inorganic Chemicals 602 609 512 518 572
    Organic Chemicals 1545 1552 125 1280 1342
    Pesticides (Tech.) 85 83 85 82 82
    Dyes & Dyestuffs 33 44 32 42 47
    Total Major Chemicals 7534 7731 7325 7524 8024

    In the chemical sector, 100% FDI is permissible under automatic route. Manufacture of most chemical products inter-alia covering organic/ inorganic chemicals, dyestuffs and pesticides is de-licensed. Entrepreneurs need to submit only IEM (Industrial entrepreneurs Memorandum) with the Department of Industrial Policy & Promotion to set up chemical manufacturing. Only the following items are covered under the compulsory licensing list because of their hazardous nature

    • Hydrocyanic acid & its derivatives
    • Phosgene & its derivatives
    • Isocynates & di-isocynates of hydrocarbons

    The basic customs duty on most chemical feed stocks is 2.5%. Import Duty on most of the chemical products is at 7.5% ad valorem. In general, the central excise duty rate for chemical sector is about 10%.

    Although the Chemical industry has been witnessing the Customs Duty reduction regime during the last decade, yet the incidence of taxes, viz. Central Excise and VAT continues to be relatively higher as compared to many Asian Countries. A major issue on duties & taxes that impact the entire cross-section and value chain of the industry is inverted duty structure. Typically, basic raw materials, building blocks/ feedstocks and fuels should be at the lowest rate of duty. This should be followed by slightly higher duty for primary chemicals, still higher for secondary chemicals and still higher for final products/chemicals, to give opportunity for value addition and also provide adequate competitive protection. Government could initiate duty structure rationalization to correct the situation. Fiscal incentives, duties and taxes rationalization could also be used as a tool to stimulate & support the growth as well as productivity of renewable resources, e.g., bio-mass feedstocks, ethanol, etc. to give fillip to green chemistry.

    Specialty chemicals, viz. high value, low volume chemicals, known for their end use applications or performance enhancing properties, have good future, and need to be declared as a focus area. These include construction chemicals, paint driers, food additives, antioxidants, retarders, water treatment chemicals, etc. Since infrastructure projects are being developed in the country on a massive scale, the demand of these chemicals will grow by leaps and bounds.

    Several initiatives need to be undertaken to ensure successful growth of the specialty chemicals sector. Special focus needs to be provided to the specialty chemicals companies to set up capacities in PCPIRs by demarcating special zones to aggregate feedstock demand. The anchor tenant will be encouraged to set up an Ethylene Oxide (EO) plant with stringent manufacturing standards to meet the feedstock demand. The additional Ethylene Oxide (EO) requirement by the specialty chemical industry by 2020 will be around 260,000 tonnes per annum, which could comfortably support 1 to 2 EO plants within the PCPIRs.


    The petrochemical industry mainly comprises synthetic fibres, polymers, Elastomers, synthetic detergents intermediates and performance plastics. The main sources of feedstock and fuel for petrochemicals are natural gas and naphtha. Today, petrochemical products permeate the entire spectrum of items of daily use, ranging from clothing, housing, construction, furniture, automobiles, household items, toys, agriculture, horticulture, irrigation and packaging to medical appliances. There are three naphtha based and an equal number of gas based cracker complexes in the country with a combined annual ethylene capacity of 2.9 million MT. During the year 2011-12, Indian Oil Corporation's Naphtha Cracker at Panipat commenced commercial production with an annual Ethylene capacity of 0.85 Million MT. Besides, there are four aromatic complexes also with a combined Xylene capacity of 2.9 million MT.

    Production of Selected Major Petrochemicals (Figures In 000' MT)

    Sub Group 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
    Synthetic Fibers 1906 2250 2524 2343 2601 2791
    Polymers 4768 5183 5304 5060 4791 5292
    Elastomers (S.Rubber ) 110 101 106 96 106 95
    Synth. Detergent Intermediates 556 556 585 552 618 638
    Performance Plastics 127 133 157 141 172 191
    Total Major Petrochemicals 7467 8224 8674 8193 8287 9007