Chemicals & Petrochemicals

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  • ​Seventh largest producer of chemicals worldwide and third largest producer in Asia. (by output) 
  • The estimated size of Indian chemicals sector stands at approximately USD 139 billion.
  • Fourth largest global producer of agro chemicals.
  • Total production of the major chemicals including petrochemicals was 23.9 million tons during 2015-16 while production of polymers stood at around 9 million tons. 
  • Chemicals sector also acts as a key enabling industry and provides support for variety of other sectors like agriculture, construction, leather etc.
  • ​The chemicals industry is a key constituent of the Indian economy, accounting for about 1.38% of the nation’s GVA (Gross Value Addition) in 2013-14.
  • India’s proximity to the Middle East, the world’s source of petrochemicals feedstock, makes for economies of scale.
  • Strong government support for R&D.
  • Polymers and agro-chemicals industries in India present immense growth opportunities.
  • 100% FDI permitted through automatic route also chemicals sector is delicensed except for few hazardous chemicals.
  • Upcoming Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) & Plastic Parks will provide state-of-the-art infrastructure for Chemical & Petrochemicals Sector.
  • Trade in most of the chemicals is free except for those attracting provision of international conventions.
  • ​India accounts for approximately 15% of the world production of dyestuff and dye intermediates.
  • Total production of the major chemicals including petrochemicals was 23.9 Million tons in 2015-16.
  • Polymer demand is expected to grow by 8-10% with healthy growth in industries such as clothing, automobiles etc.
  • Chemicals is one of the most diversified in the world, covering more than 70,000 commercial products.
  • ​A large population, huge domestic market dependence on agriculture and strong exports are the key growth drivers for the industry.
  • A global shift towards Asia as the World’s chemicals manufacturing hub.
  • India’s per capita consumption of chemicals in India is lower as compared to western countries, which provides immense scope and opportunities for new investments.
  • Rise in GDP and purchasing power generates huge growth potential for the domestic market.
  • A focus on new segments such as specialty and knowledge chemicals.
  •  Globally cost competitive manufacturing.
  • Availability of Skilled professionals with requisite technical knowledge including World-class engineering and strong R&D facilities.
  • ​100% Foreign Direct Investment (FDI) is allowed under the automatic route in the chemicals sector, subject to all the applicable regulations and laws.
  1. ​Industrial licensing has been abolished for most sub-sectors except for certain hazardous chemicals.
  2. The government is continuously contracting the list of reserved chemical items for production in the small-scale sector, thereby facilitating greater investment in technology upgradation and modernization.
  3. Formation of industrial cluster/plastic parks of world class quality - PCPIR will be an investment region spread across 250 square kms for the manufacture of domestic and export-related products of petroleum, chemicals and petrochemicals. Policies have been initiated to facilitate set up of PCPIRs throughout the selected locations.
  4. Some of the strategies proposed between 2015-16 include:
    • Implementation of strategy for sourcing and allocation of feedstock.
    • Setting of “Centers of Excellence” in the country for research in the field of Petrochemicals Sector.
    • Focus on green and sustainable technologies and reducing the environmental impact of the sector.
    • Augmenting existing testing centers to act as certifying agencies for testing plastic products and raw material to meet Bureau of Indian Standards.
    • Establishing specialized vocational training centers in clusters for skill development.

Budget announcements for 2016-17:

  • Custom duty on Ethyl Alcohol/Ethanol has been reduced from 5% to 2.5%. 
  • Custom duty on Capacitor Grades polypropylene granules or resins for the manufacture of capacitor grade plastic film (392) has been reduced from 7% to 0% (not produced in the country). 
  • Custom duty on Acyclic Hydrocarbons Cyclic Hydrocarbons, Ethylene, Propylene etc. Benzene, Toluene (2901, 2902 except 2924300, 29025000) has been Rationalized from 2% to 2.5%. 
  • Custom duty on Super absorbent polymer (SAP) imported for use in the manufacture of the Adult diapers has been reduced from 7% to 5%. 
  • Custom duty on Ortho xylene for the manufacture of Phthalic Anhydride (29024100) has been reduced from 4% to 2%. 
  • Excise duty on Epoxy resin, Vinyl ester adhesives, Hardener for adhesives resin, hardeners, Polyester infusion resin for rotor blades for Wind Operated Electricity Generators has been reduced from 12% to 6%. 

R&D Incentives:

  • Industry/private sponsored research programmes – a weighted tax deduction is given under Section 35 (2AA) of the Income Tax Act. A weighted deduction of 200% is granted to assess for any sums paid to a national laboratory, university or institute of technology, for specified persons with a specific direction, provided the said sum is used for scientific research within a programme approved by the prescribed authority.

Companies engaged in manufacture having an in-house R&D centre:

  • A weighted tax deduction of 2005 under Section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure incurred on scientific research and development. Expenditure on land and building are not eligible for deductions.

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.
  • Service Exports 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.

PCPIR: Viability Gap Funding (VGF)

As per PCPIR policy, Government of India (GoI) is mandated to ensure availability of external physical infrastructure linkages to the PCPIRs including connectivity through Railways, Roads, Ports, Airports and Telecom. This infrastructure is created or upgraded, through “Public Private Partnership” projects to the extent possible. The Central Government also provides necessary funding to make such projects viable, called Viability Gap Funding (VGF), as well as budget support for creation of these linkages. Government of India has approved financial support (VGF) of USD 484.04 million for infrastructure projects in Public Private Partnership (PPP) mode in four PCPIRs. The State Governments have been advised to prepare projects for approval of Government of India on these funding requirements.



  • India exports about 50% of its current production and exports are likely to remain a key component of the industry.

Speciality Chemicals:

  • The specialty chemicals market has witnessed a growth of 14% in the last five years; the market size is expected to reach USD 70 Billion by 2020.
  • India is currently the world’s third largest consumer of polymers and growth in plastic demand will drive up consumption further.
  • Growth drivers include a growing construction industry and adoption of advanced coating, ceiling and polymer-based reinforcing material in construction as well as plastics, paints and coating for the automotive sector.

Colourant Chemicals:

  • The Indian colorant industry is valued at USD 6.8 Billion, with exports accounting for nearly 75%.
  • India accounts for 15% of global industry share and this figure is expected to further increase.
  • Other segments include petrochemicals, bio-pharma, bio-agri, and bio-industrial products.

Prominent industrial clusters / SEZs and major upcoming projects in PCPIRs

Gujarat PCPIR

  • SEZs: Dahej SEZ: Operational SEZ (Multi Product) Area: 1732 Ha and Jubilant SEZ: Sector Specific SEZ for Chemicals Area: 265 Acres
  • Allotment of land to the prospective companies within PCPIR is planned by GIDC.
  • Existing industries in Dahej area - Reliance Industries Ltd., ONGC, GAIL, Gujarat Alkali Chemicals Ltd., Hinadalco, BASF, Lanxess, Jubilant SEZ, Roxul, Rallis, Godrej, Gujarat State Fertilizers Corporation, Gujarat Narmada Fertilizers, Asian Paints, Pidilite, SRF etc. are some of the existing industrial units in the Dahej PCPIR.

Andhra Pradesh PCPIR

AP PCPIR covers the following SEZs:

  • Brandix SEZ - developed by private developer for Textiles and Apparels over 405 hectare.
  • Pharma SEZ - for Pharmaceuticals under PPP spread over 243 hectare.
  • AP SEZ - developed by APIIC over 890 hectare for multi products.
  • Hetero drugs SEZ - developed by private developer over 101 hectare for pharmaceuticals.
  • Kakinada SEZ - developed by private developer over 2559 Acres (1036 hectares notified) in 1st Phase.
  • Parry Food Products SEZ - by private developer over 101 hectare for food products.

Odisha PCPIR

Existing Units:

  • IFFCO: Fertilizer unit of 2 MMTPA capacity producing DAP, Phosphoric Acid and Sulphuric Acid.
  • Paradeep Phosphate Limited: A production unit of 1.25 MMPTA of DAP and other phosphate fertilizers.
  • Paradeep Carbon Limited: Manufactures 0.125 MMPTA of Calcined Petroleum Coke.

Planned Units:

  • Plastic Park- over 120 acres of land has been approved and project implementation is underway and expected to be ready for allotment by March 2016.

Tamil Nadu

  • In the designated PCPIR area, 1733 hectare is occupied by existing industrial units (SIPCOT estate) which include SEZs, clusters, Plastic Parks, Pharma clusters, Food parks etc. In addition, industrial projects are in progress in 988 hectare.
  • ​Mitsubishi Chemicals Corporation (Japan)
  • BASF (Germany)
  • ADEKA (Japan)
  • Akzo Nobel (Netherlands)
  • DuPont (USA)
  • Syngenta (Switzerland)
  • Croda (UK)
  • DyStar (Germany)
  • Henkel (Germany)
  • Rhodla (Belgium)
  • Wacker Metroark (Germany)
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