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Chemical industry in India

Tuesday, September 26, 2006

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Chemical industry is one of the oldest industries in India. It not only plays a crucial role in meeting the daily needs of the common man, but also contributes significantly towards industrial and economic growth of the nation. The industry, including petro-chemicals, and alcohol-based chemicals, has grown at a pace outperforming the overall growth of the industry.

2. The global chemical market is estimated at approximately USD 1.7 trillion. Western Europe is the largest chemical-producing region followed by North America and Asia.

3. The Indian Chemical Industry ranks 12th by volume in the world production of chemicals. The industry’s current turnover is about USD 30.8 billion which is 14% of the total manufacturing output of the country. The export of chemicals in the year 2002 was USD 5.875 billion, which forms almost 0.9 % of the world export of chemical products and about 13% of the country’s total export. Substantial proportion of these exports goes to the USA, Europe and other developed nations. Its contribution to the national revenue by way of custom and excise duties is about 20%. India is strong in basic chemicals that go into production of consumer items like paints, dyes, soaps, medicines, toiletries, cosmetics, etc.

4. The Indian Chemicals Industry comprises both small and large scale units. The fiscal concessions granted to small sector in mid-eighties led to establishment of large number of units in the Small Scale Industry (SSI) sector. Currently, the Indian Chemical Industry is in the midst of major restructuring and consolidation phase. With the shift in emphasis on product innovation, brand building and environmental friendliness, this industry is increasingly moving towards greater customer-orientation. Even though India enjoys an abundant supply of basic raw materials, it will have to build upon technical services and marketing capabilities to face global competition and increase its share of exports.

5. In terms of consumption, the chemical industry is its own largest customer and accounts for approximately 33 per cent of the consumption. In most cases, basic chemicals undergo several processing stages to be converted into downstream chemicals. These in turn are used for industrial applications, agriculture, or directly for consumer markets. Industrial and agricultural uses of chemicals include auxiliary materials such as adhesives, unprocessed plastics, dyes and fertilizers, while uses within the consumer sector include pharmaceuticals, cosmetics, household products, paints, etc.

6. India also produces a large number of fine and speciality chemicals, which have very specific uses and are essential for increasing industrial production. These find wide usage as food additives, pigments, polymer additives, anti-oxidants in the rubber industry, etc. Some of the important manufacturers of speciality chemicals include NOCIL, Bayer (India), ICI (India), Hico Products and Colourchem.

7. The Dyestuff sector is one of the important segments of the chemicals industry in India, having forward and backward linkages with a variety of sectors like textiles, leather, paper, plastics, printing ink and foodstuffs. The textile industry accounts for the largest consumption of dyestuffs at nearly 80%. From being importers and distributors in the 1950’s, it has now emerged as a very strong industry and a major foreign exchange earner. India has emerged as a global supplier of dyestuff and dyes intermediates, particularly for reactive, acid, vat and direct dyes. As for a global production of dyes is concerned, India accounts for 6% of the world production.

8. Chemical fertilizers and pesticides played an important role in the "Green Revolution" during the 1960s and 1970s. The consumption of pesticides in India is low in comparison to other countries. Indian exports of agrochemicals have shown an impressive growth over the last five years.

The key export destination markets are USA, UK, France, Netherlands, Belgium, Spain, South Africa, Bangladesh, Malaysia and Singapore.

9. The Government is promoting research on the use of alternative and unharmful pesticides using neem seeds. A country programme entitled "Development and Production of Neem Products as Environment Friendly Pesticides" is being undertaken by the Department of Chemicals & Petrochemicals with the financial assistance of United Nations Development Programme (UNDP)/ United Nations Industrial Development Organization (UNIDO). The project is being implemented at two locations viz., Nimpith in West Bengal and Nagpur in Maharashtra to promote production, processing and use of neem-based products, thereby aiding wasteland development, generating rural employment and providing farmers with eco-friendly/bio-degradable pesticides.

10. Production performance of some of the important chemicals including pesticides and dyestuffs are given below:


Installed Capacity 31.3.2003







Soda Ash





Caustic Soda





Liquid Chlorine





Calcium Carbide















Tech. Pesticides












Industrial Policy


A.    The New Industrial Policy exempts all industrial undertakings from licensing requirements, subject to the following conditions.

The proposed article(s) of manufacture is/are not included in:

·        List of items reserved for the public sector;

·        List of items which are subject to compulsory licensing;

·        List of items reserved for small-scale sector.

B.      Locational Policy:  The proposed project should not be located within 25kms of the standard urban area limits of a city with a population of more than 10 lakhs according to 1991 census.  These conditions will not apply for the units located within the area designated as ““Industrial Area” by the State Government before July 25, 1991.  If the unit is proposed to be located in a restricted location, industrial licence need to be obtained.

Following chemical items are subject to compulsory licensing:

         Hydro cyanic acid and its derivatives.

         Phosgene and its derivatives.

         Isocyanate and di-isocyanates of hydrocarbon not elsewhere specified.



FDI Policy

Foreign Direct Investment (FDI) Policy:

The procedure has been simplified for facilitating foreign direct investment. Most of the chemical items fall under the RBI automatic approval route for FDI/NRI/OCB investment up to 100% except the following:

·        Activities / items that require an industrial license

·        Proposals in which the foreign collaborator has previous / existing venture/tie up in India in the same or allied field.

·        All proposals relating to acquisition of shares in an existing Indian company by a foreign/NRI investor.

·        All proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted.

For other industries, Government approval is accorded through Foreign Investment Promotion Board (FIPB).

Details regarding Industrial Licensing and Foreign Direct Investment can be obtained at the website of Department of Industrial Policy and Promotion ( .



Exim Policy
Export & Import Policies 2004-2009

In the export & import policy the following provisions have been made to facilitate exports. Various schemes are.

A) Export Promotion Capital Goods (EPCG) Schemes wherein Capital Goods (CG) can be imported at 5% Customs Duty subject to an export obligation equivalent to 8 times of duty saved on CG imported to be fulfilled over a period of 8 years. The export obligation shall be fulfilled by the export of goods capable of being manufactured or produced by the use of the CG imported under the scheme.

B) Export Oriented units: - Units undertaking to export their production of goods may set up units under Export Oriented Units (EOUs) Scheme. These units can sell products manufactured by them including scrap/waste/remnants arising out of production within the overall ceiling of 50% of FOB value of export in the Domestic Tariff Area(DTA) on payment of applicable duties. These units can import without payment of duty all types of goods, including capital goods, required for its activities as prescribed in the EXIM Policy. EOU unit shall be a positive Net Foreign Exchange Earner. Only projects having a minimum investment of Rs.1 crore in the plant and machinery shall be considered for establishment as EOUs under the scheme.

Special Economic Zones: - SEZ is specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. Goods going into the SEZ area from DTA shall be treated as exports and goods coming from the SEZ area into DTA shall be treated as if these are being imported. SEZ units may sell goods, including by-products, in DTA in accordance with the import policy in force, on payment of applicable duty.

C) Duty Exemption schemes enables duty free import of inputs which are physically incorporated in the export product and required for export production. Under this scheme, the exporters can take the advance license on self declaration scheme under Para 4.7 of Hand Book of procedures where Standard Input Output Norms (SION) do not exit in the EXIM Policy. The import of fuel is also allowed upto 4% of the fob value of export in case of Dyes & Dye intermediate & organic chemicals, upto 5% of fob value of exports of Pesticides (Technical)/ Pesticides formulation from basic stage and upto 3% of FOB value of exports of Inorganic Chemicals for neutralization of high fuel cost for export purposes

Details regarding EXIM Policy can be obtained at DGFT website

DEPB/Draw Back rates

DEPB/draw back rates may also be availed by the exporter as an alternate to advance license scheme. The objective of Duty Entitlement Pass book Scheme is to neutralize the incidence of basic customs duty and surcharge thereof on the import content of the export product. The duty credit under the scheme is calculated by considering the import content and value addition as per standard input/output norms.

Project Import

Under Chapter 98.01 of Customs Tariff Act, imports of capital goods are permitted at the rate of duty of 20%. The objective of the scheme is to encourage initial setting of a unit or substantial expansion of the existing unit.

The provisions to permit import of CG is given below:

"All items of machinery including prime movers, instruments, apparatus and appliances, control gear and transmission equipment, auxiliary equipment (including those required for research and development purposes, testing and quality control), as well as all components (whether finished or not) or raw-materials for the manufacture of the aforesaid items and their components, required for the initial setting up of a unit, or the substantial expansion of an existing unit, of a specified "Industrial Plant".

Spare parts, raw materials or consumable stores which are essential for the maintenance of the plant are allowed up to 10% of the CIF value of the equipments".


The Working Group constituted by Dept. of Chemicals & Petrochemicals have estimated demand of various chemicals by 2000 AD which is as under :

(Figures in ‘000’ MT)


Chemical Products

Demand by
2000 AD

1. Dyestuffs


2. Caustic Soda


3. Soda Ash


4. Calcium carbide


5. Aluminium Fluoride


6. Synthetic Cryolite


7. Calcium carbonate


8. Potassium Chlorate


9. Sodium Nitrate


10. Carbon Black


11. Titanium Dioxide


12. Acetaldehyde


13. Acetic Acid


14. Acetic Anhydride


15. Acetone


16. Ethyl Alcohol


17. Aniline


18. Chloro Methane


19. Citric Acid


20. MDI


21. Formaldehyde


22. Methanol


23. Nitro Benzene


24. Phenol


25. Phthalate Plasticizers




Source: Ministry of Chemicals & Fertilizers

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