Chemical Industry: Powering India’s Participation in Global Value Chains: Report

Syllabus: GS3/Economy

Context

• NITI Aayog has released its report “Chemical Industry: Powering India’s Participation in Global Value Chains”.

About

• This report offers an extensive analysis of India’s chemical sector, highlighting both opportunities and challenges, and outlining a pathway for positioning India as a key player in global chemical markets.
• The chemical industry is a vast and diverse sector that encompasses the production, transformation, and distribution of chemical substances. 

India’s Chemical Industry

• India is the sixth-largest chemicals producer globally and third in Asia and holds immense potential for expansion. 
• Share in Global Chain: India has a 3.5% share in global chemical value chains. 
• Market Size: With over $220 billion market size in 2023, it contributed around 7% to India’s GDP and provided vital raw materials to critical sectors such as agriculture, pharmaceuticals, textiles, automotive, and construction. 
• Future Projection: The industry is poised to expand to $400–450 billion by 2030 and potentially reach $1 trillion by 2040.

Key Segments by Market Consumption

• Petrochemicals : These chemicals are derived from petroleum and natural gas through a refinement process and are also known as petroleum distillates.
  • Petrochemicals form the biggest chemicals segment, with consumption of $65 to $75 billion. The production – consumption gap in these has remained negative over the years.
• Specialty Chemicals: Chemicals with high value but low production volume are considered specialty chemicals, such as paints and coating, dyes, agrochemicals, textile chemicals etc.
  • This category constitutes around $40 to $ 45 billion of market consumption and over 50% of India’s chemical exports.
• Inorganic Chemicals: Fundamental to India’s industrial base, these chemicals provide essential materials for applications in construction, water treatment and electronics, among other sectors.
  • They encompass a variety of substances such as metals, salts and minerals.
  • They make up $15 to 20 billion of the total market consumption.
• Other Non-Core Segments: Other “non-core” chemicals categories include fertilizers, pharmaceutical products  and medical devices and personal care consumer products.
  • Together, they contribute around $90 billion in market consumption.

Major Constraints

• High Import Dependence: In 2023, India imported chemicals worth $75 billion compared to exports worth $44 billion, accounting for a trade deficit of around $31 billion; major imports were from China (30–35%).
• Low Investment in R&D: India’s low investment in R&D, with only 0.7% of investment against the global average of 2.3%, hampers indigenous innovation in high-value chemicals.
• Infrastructure Deficits: Infrastructure gaps, outdated industrial clusters, and high logistics costs have created a cost disadvantage compared to global peers.
• Regulatory Complexity: Delayed environmental clearances, multiple approvals hampers the growth of the sector.
• Skilled Talent Gap: The sector is hampered by a 30% shortfall in skilled professionals, particularly in emerging areas such as green chemistry, nanotechnology, and process safety.
• Low Diversification: Focus on bulk chemicals over high-value products.

Strategic Vision: Doubling India’s Global Value Chain Share by 2030

• Growth Drivers: 
  • Rapid urbanization and consumer demand.
  • Supply chain shifts post-COVID and geopolitical tensions.
  • India’s potential to serve as a reliable global partner.

Seven Strategic Interventions

• Intervention 1Establish World-Class Chemicals Hubs:
  • Establishment of empowered committee at the Central level along with creation of a Chemical Fund under the committee with a budgetary outlay for shared infrastructure development, VGF, etc 
  • Revitalize existing hubs (Dahej, Paradip, Visakhapatnam, Cuddalore–Nagapattinam).
• Intervention 2 Strengthen Port Infrastructure:
  • Establish chemical Committee at major ports.
  • Develop 8 high-potential coastal clusters.
• Intervention 3 Introduce a Opex subsidy scheme for chemicals:
  • Incentivize incremental production of chemicals based on import bill, export potential, single source country dependence, end-market criticality etc. 
  • The scheme proposes for incentives on incremental sales to selected participants for a fixed number of years.
• Intervention 4 : Develop and access technologies to enhance self-sufficiency and foster innovation:
  • Disbursement of R&D funds to drive innovation with enhanced collaboration between industry and academia through creation of an interface agency in collaboration with DCPC and DST.
  • Encourage MNC partnerships for access to global tech.
• Intervention 5 Streamline Environmental Clearances:
  • Fast-track approval system with autonomy for EAC.
  • “Deemed EC” if the delay exceeds 270 days.
  • Clubbing EAC and EIAA for quicker processing.
• Intervention 6 Securing Free Trade Agreements (FTAs) to support Industry growth: 
  • Targeted negotiations for tariff quotas and critical feedstock exemptions.
  • Simplify FTA compliance to widen industry access.
• Intervention 7 Talent and skill upgradation in the chemical industry: 
  • Expansion of ITIs and specialized training institutes.
  • Design industry-aligned curricula in polymer science, petrochemicals, safety.
  • Faculty training and PPP-based apprenticeship programs.

Way Ahead: Toward a $1 Trillion Industry

• India’s chemical industry sits at a pivotal juncture. The combination of domestic market strength, favorable policy momentum, and global supply chain realignments present an unprecedented opportunity.
• If the government successfully implements the seven-pronged intervention strategy, India can:
  • Transform into a global manufacturing hub.
  • Secure strategic autonomy in key chemical segments.
  • Lead in green and innovation-driven chemical production.
• Achieving this would not only bolster India’s share in GVCs but significantly contribute to the $5 trillion economy vision.

Source: PIB