Chemicals & Petrochemicals

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SUMMARY
  • The Chemical industry in India  provides several building blocks and raw materials for many industries, including textiles, paper, paints, soap and detergents, pharmaceuticals, agrochemicals etc.1
  • The Chemical industry (including fertilizers and pharmaceuticals) in India stands at $163 Bn as of 2018.2
  • The global chemical industry is estimated to be worth $4.7 Tn. The Chemical industry in India contributes 3.4% to the global chemical industry.3
  • The Chemical industry in India employs more than 2 mn people as on 2018.4
  • The current per capita consumption of chemical products in India is 1/10th of the world average.5
REASONS TO INVEST
  • India's Chemical Industry ranks at the 6th position in the world and 4th position in Asia in terms of size.6
  • A large part of the growing Chemical industry is currently served through manufacturing done outside the country.7
  • India ranks 17th in the world export of chemicals (excluding pharmaceutical products) and ranks 7th in the world imports of chemicals (excluding pharmaceuticals products).8
  • The value additions in the petrochemicals chain offer immense possibilities and cater to the needs of textiles and clothing, agriculture, packaging, infrastructure, healthcare, furniture, automobiles, information technology, power, electronics and telecommunication, irrigation, drinking water, construction and a variety of other articles of daily and specialized usage amidst other emerging areas.9
  • The Indian market offers a large population and a strong export demand.10
  • In recent times, there has been a global shift towards Asia as the world’s chemical manufacturing hub.11
  • Rise in GDP and purchasing power generates huge growth potential for the domestic market.12
  • Availability of a large pool of skilled science professionals.13
  • India offers world class engineering facilities and strong R&D capabilities.14
  • The per capita consumption of chemicals is lower in India, compared to western countries, therefore presenting immense scope for new investments.15
STATISTICS
  • The Chemical industry in India is expected to grow at 9% per annum to reach $304 Bn by FY 2025.16 The growth is expected to be driven by rising demand in end-use segments for Specialty Chemicals and for petrochemical intermediates.17
  • In 2015-16, the Chemical and Chemical Products industry accounted for 2.39% of the GVA, compared to 2.23% in 2014-15.18
  • The production of major chemicals and petrochemicals between April-September 2017 was 12,816 thousand metric tonne (MT), compared to 12,906 thousand MT between April-September 2016.19 
  • The production of major chemicals between April-September 2017 stood at 5307 thousand MT, compared to 5087 thousand MT during April-September 2016.20
  • Alkali chemicals account for 69% of the total production of major chemicals.21
  • The production of Basic Major Petrochemicals between April-September 2017 was 7,509 thousand MT, compared to 7,819 thousand MT between April-September 2017.22
  • Polymers account for approximately 59% of the total production of basic major petrochemicals.23
  • The value of chemicals and chemical products exported for the period April-September 2017 stood at $14.2 Bn.24
  • The share of export of Chemicals and Petrochemicals is 10.3% of the total national export in 2016-17.25
  • The value of imports of Chemicals and Petrochemicals for the period April-September 2017 stood at $21.9 Bn.26
FDI POLICY
  • 100% FDI is allowed under the automatic route in the Chemical industry, except in the case of hazardous chemicals.
SECTOR POLICY

Petroleum, Chemicals and Petrochemical Investment Regions (PCPIRs)

  • The Government of India has conceptualized PCPIRs as clusters that provide investors with a transparent and investment friendly policy and facility regime. PCPIRs have high-class infrastructure and provide a competitive environment conducive for setting up businesses.
  • Each PCPIR is a specifically delineated region spread over an area of about 250 sq. km. These areas will have manufacturing facilities, along with associated logistics and other services. The required infrastructure along with a non-processing area will be developed, to include residential, commercial and other social and institutional infrastructure.
  • The minimum processing area for the PCPIR will be about 40% of the total designated area, i.e., around 100 sq. km.
  • 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).27
  • The projected investment on full realisation of PCPIRs is $1091.4 Bn.28
  • As of November 2018, investments worth $261.8 Bn have been and committed and more than 300,000 persons have been employed in direct and indirect activities related to PCPIRs.29
  • The following progress has been made in PCPIRs30 (as of July 2018):
    • Dahej PCPIR:
      • Area: 453 sq. km.
      • Actual investment made/committed: $12.2 Bn
      • Employment generated: 132,000 personnel
    • Vishakhapatnam-Kakinada PCPIR:
      • Area: 640 sq. km.
      • Actual investment made/committed: $6.3 Bn
      • Employment generated: 111,000 personnel
    • Paradeep PCPIR:
      • Area: 284.15 sq. km
      • Actual investment made/committed: $6.43 Bn
      • Employment generated: 38,000
    • Cuddalore and Nagapattinam PCPIR:
      • Area: 256.83 sq. km.
      • Actual investment made/committed: $1.2 Bn
      • Employment generated: 13,950

For more details on the PCPIRs, refer to PCPIR Policy.

Plastic Parks

  • The Department of Chemicals and Petrochemicals has formulated the scheme for setting up Plastic Parks with the objective of synergizing and consolidating the various units of the Indian Plastics Industry.31
  • The units will be consolidated through the cluster development approach. The Government of India will provide grant funding of up to 50% of the project cost subject to a ceiling of $5.7 Mn.32 The remaining project cost is to be funded by the State Government or State Industrial Development Corporation.
  • Plastic Parks in States of Madhya Pradesh, Odisha, Jharkhand33, Uttar Pradesh34, Assam & Tamil Nadu are being set up under the scheme of Plastic Parks.

For more details, refer to Scheme for Setting Up Plastic Parks.

National Policy on Petrochemicals 

  • The National Policy on Petrochemicals aims to achieve sustainable development for the petrochemical industry by promoting research and development and human resource planning and development to cater to the needs of the industry by adopting a mission mode approach.35
  • A programme on Petrochemical Development is required to improve existing petrochemical technology and research in the country and to promote the development of new applications of polymers and plastics. Centre(s) of Excellence (COE) are being set up for this reason and will be one of the components of the programme.
  • COEs will be set up in existing educational and research institutions working in the field of polymers, and include the following:
    • Updating and modifying products for new uses
    • Innovative product technology and product designs
    • Improving production processes to make them more efficient
    • Development of biopolymers and biodegradable polymers
  • The COEs are expected to emerge as internationally recognised centres for the analysis and dissemination of existing global knowledge, provide authoritative, strategic and timely information to organizations and companies to use in the development and implementation of their projects/programmes, which engaging in path-break R&D efforts.36
  • 5 COEs have been set up in Pune, Chennai, Delhi, Bhubaneshwar and Guwahati.

For more details, refer to National Policy on Petrochemicals.

Chemicals Promotion Development Scheme

The aim of the Chemicals Promotion Development Scheme (CPDS) is promotion and development of chemical and petro-chemical industry by extending financial support to conduct of seminars, conferences, exhibitions, conducting studies/consultancies, for facilitating growth as well as analysing critical issues affecting the chemical and petrochemical industry.

For more details, refer to Chemical Promotion Development Scheme.

Central Institute of Plastic Engineering and Technology

The Central Institute of Plastic Engineering and Technology (CIPET) has been set up to develop manpower in different disciplines of Plastics Engineering and Technology. The CIPET has a variety of activities and programs focusing on skill training, technology support, academics and research.

For more details, refer to Central Institute of Plastic Engineering and Technology.

FINANCIAL SUPPORT

R&D INCENTIVES FOR INDUSTRY AND PRIVATE SPONSORED RESEARCH

  • A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act.
  • Weighted deduction of 200% is granted to assess for any sums paid to a national laboratory, university or institute of technology, or specified people with a specific direction and that the said sum is used for scientific research within a program approved by the prescribed authority.

MANUFACTURERS WITH AN IN-HOUSE R&D CENTRE

  • Section 35 (2AB) of the Income Tax Act, 1961 provides weighted tax deduction of 150% of the expenditure incurred by a specified company, on scientific research in the in-house R&D centres as approved by the prescribed authority. This does not include expenditure on the cost of any land or building.
  • The weighted tax deductions of 150% are effective till 31st March’2020. Consequent to that, the weighted tax deductions will be 100%.

STATE INCENTIVES

  • Apart from the above, each state in India offers additional incentives for industrial projects.
  • Incentives are in areas like subsidized land cost and relaxation in stamp duty exemption on sale/lease of land, power tariff incentives, concessional rate of interest on loans, investment subsidies/tax incentives, backward areas subsidies, special incentive packages for mega projects etc.

EXPORT INCENTIVES

  • Export promotion capital goods scheme
  • Duty drawback scheme
  • Merchandise Export from India Scheme

AREA-BASED INCENTIVES

  • Incentives for units in Special Economic Zones (SEZ)/National Investment and Manufacturing Zones (NIMZ) as specified in respective Acts or setting up projects in special areas like the North-east, Jammu & Kashmir, Himachal Pradesh & Uttarakhand.

Key Points in the Union Budget 2019-20

  • The total allocation towards the Department Chemicals and Petrochemicals is $37.7 Mn.37
  • The total allocation towards the Assam Gas Cracker Project stands at $14.3 Mn.38
  • Under the Budget 2019-20, the allocation made towards the Chemical Promotion and Development Scheme is $0.4 Mn.39
  • The total allocation towards the Central Institute of Plastic Engineering and Technology stands at $11.4 Mn.40
  • The allocation towards the Promotion of Petrochemicals stands at $4.5 Mn.41
INVESTMENT OPPORTUNITIES

Agro-Chemicals

The Indian Agro-Chemicals market is worth $2.5 Bn.42 There is a huge opportunity for the Indian market to grow fast with the expected CAGR being pegged at 8%.43 India holds the second place in the world accounting for 7.7% of global agricultural output. However, the per hectare productivity is very low (3 MT per hectare) compared to the world average of 4 MT per hectare due to lack of scientific methods of agriculture.44 The losses in agriculture account for 12.46% of the total agricultural output.45

The Agro-Chemical industry in India therefore requires:

  • newer and safer products
  • integrated agrochemical plants
  • export oriented plants.46

Fine & Specialty Chemicals

India produces many fine and speciality chemicals, which have very specific uses and are essential for increasing industrial production. These special chemicals find wide usage as food additives and pigments, polymer additives, anti-oxidants in the rubber industry, etc.47

Indian specialty chemicals industry is expected to account for 5% of Global Specialty Chemicals by 2020.

FOREIGN INVESTORS
  • Mitsubishi Chemicals Corporation (Japan)
  • Akzo Nobel (Netherlands)
  • DuPont (USA)
  • Syngenta (Switzerland)
  • Croda (UK)
  • DyStar (Germany)
  • Henkel (Germany)
KEY ACHIEVEMENTS
  • 0.44 mn MT Per Annum Polypropylene Plant commissioned at Mangalore.48
  • Assam Gas Cracker Project – Brahmaputra Cracker & Polymer Limited (BCPL) is operating at 100% capacity.49
  • Five plants of the Fertilizer Corporation of India Limited (FCIL) are being revived. The plants are in Barauni, Sindri, Gorakhpur, Ramagundam and Talcher.50 For more information, please log onto FCIL.
  • The Government of India has given the go ahead to set up 4 Petroleum, Chemical and Petrochemical Investment Regions (PCPIRs) in Dahej (Gujarat), Vishakhapatnam-Kakinada (Andhra Pradesh), Paradeep (Odisha) and Cuddalore-Nagapattinam (Tamil Nadu).51 These PCIRs are expected to attract an investment of about $108.9 Bn and generate employment for around 3.4 mn people. The PCPIRs are currently at different stages of implementation.52
  • Between April-November 2018, the Central Institute of Plastic Engineering and Technology (CIPET) has trained 28,774 students through various long term and short-term skill development programmes.53
  • Two new Plastic Parks are being set up in the states of Jharkhand and Madhya Pradesh.54
SOURCES
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