Indian Chemical & Petrochemical Industry: Multiple Growth Avenues and Revenue Streams

India ranks sixth globally in terms of chemical production and currently is the third largest producer in Asia. Further down the line, the specialty chemical sector is considered as the high growth potential industry in India. It plays a symbolic role in the Indian economy with registered revenue of USD 28 billion, and accounts for approximately 20 percent of the total chemical industry. This article provides an industry insight in terms of growth and revenue, and unleashes the way forward.

Sectoral Background, Trends, and Future Scenario
India ranks sixth globally in terms of chemical production and currently is the third largest producer in Asia. In the year 2020, the highly diversified Indian chemical industry is projected to stand at USD 200 billion; and by 2025, it will reach USD 304 billion. Chemical and petrochemical sector act as the key enablers, and provide crucial support to a range of other sectors including agriculture, construction, leather etc. In FY 2017-18, production of chemicals and petrochemicals stood at 47,882 thousand metric tons (MT), registering a year-on-year growth of 2.62 percent over FY 2016-17. The Union Budget for USD 30 million has been allocated during the year 2018-19 to Department of Chemicals & Petrochemicals to further bolster the sector's performance.

Sectoral Classification and Potential Investment Areas
The industry is further classified into Basic chemicals, Specialty chemicals , and Agrochemicals. Agrochemicals, specialty chemicals, and colorant chemicals have huge investment potential. India is the fourth largest producer of agrochemicals. Currently, the Indian agrochemical industry is valued at USD 4.9 billion, and around 50 percent of it is acclimatized for export purposes.

The specialty chemicals industry in India plays a symbolic role in the Indian economy with registered revenue of USD 28 billion; and accounts for approximately 20 per cent of the total chemical industry. The specialty chemical segment comprises of paints and coatings, adhesives and sealants, additives for pharmaceuticals, lubricants and additives, catalysts, water treatment chemicals, and plastic additives. Indian specialty chemicals industry flourished at a CAGR of 14 percent during FY2010-15, and is anticipated to expand at around 13 percent during FY2015-20. In 2020, the market size of specialty chemicals is expected to be around USD 70 billion. The industry acknowledges Speciality Chemicals as a high growth potential industry in India, and this is expected to account for 5 percent of global specialty chemicals industry by 2020. Within the sector, organic speciality is expected to be the main growth driver. Agro-oriented speciality chemicals , backed by a huge domestic demand potential, are expected to register higher growth rates than what is foreseen globally.

The colorant chemical industry is expected to grow at a rate of 11 percent over the period of FY 2015-20; and will be valued at USD 9.1 billion by FY 2020.

Sector Support: Government Policies and Various Incentives
The shift toward Asia as the global hub for manufacturing chemicals, availability of a skilled workforce, world class engineering and strong R & D focus coupled with burgeoning income, increasing domestic demand, and strong policy support by Government has made India a perfect melting pot for start-ups willing to invest in the chemical sector.

Government policies for the sector which is expected to further boost its growth momentum are as follows:

Under the Petroleum, Chemical and Petrochemical Investment Regions' (PCPIR) Policy, - Government of India conceptualized a cluster approach for the promotion of Petroleum, Chemical, and Petrochemical sectors in an integrated and environment friendly manner on a large scale. Each PCPIR is a specifically delineated investment region having an area of about 250 sq. km with around 40 percent of the area earmarked for processing activities. The Ministry of Chemicals & Petrochemicals has set up four PCPIRs - in the states of Andhra Pradesh (Vishakhapatnam), Gujarat (Dahej), Odisha (Paradeep ), and Tamil Nadu (Cuddalore and Nagapattinam); these are expected to attract investment of around USD 117 billion, generating employment for 34 lakh persons. Till date, investments worth USD 28 billion have been made employing around 2.93 lakh persons.

The scheme for setting up of Plastic Parks aims to set up the need-based plastic parks and the development of a strong ecosystem along with the provision of common facilities through cluster development approach. Government of India provides grant funding up to 50 percent of the project cost, subject to a ceiling of USD 6 million per project. And, the remaining project cost is to be funded by State Governments or State Industrial Development Corporation. Plastic Parks in Madhya Pradesh, Odisha, Assam, and Tamil Nadu are being set up under this scheme.

The Department of Chemicals and Petrochemicals provides financial support of 50 percent of total project cost, subject to an upper limit of USD 0.9 million over a period of three years to set up various Centers of Excellence (CoE), viz.:
  • CoE for Sustainable Polymer Industry through Research, Innovation, and Training (CoE-SPIRIT) at National Chemicals Laboratory, Pune
  • CoE for Green Transportation Network (GREET) at Central Institute of Plastics Engineering & Technology (CIPET), Chennai
  • CoE for Advanced Polymeric Materials at IIT, Delhi
  • CoE on Sustainable Green Materials at CIPET, Bhubaneswar
  • CoE for Sustainable Polymers at IIT, Guwahati
To promote Skill Development, there is a provision of Grant-in-aid to educational/research institutes for setting up a CoE to improve existing petrochemicals technology and to promote development of new applications of polymers and plastics. Under the Chemicals Promotion Development Scheme (CPDS), the Government provides Grant-in-aid for creation of knowledge products through studies, survey, data bank, promotion materials, etc. to facilitate development of the sector. To strengthen civil and technical infrastructure, research and development capacities, academic and training initiatives, -- budgetary allocations are made toward CIPET (Central Institute of Plastic Engineering and Technology).

While Foreign Direct Investment (of up to 100 per cent) is allowed in the industry through the automatic route, key financial support as offered by the Government to the sectoral market players is as follows :

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

Section 35 (2AB) of the Income Tax Act, 1961 provides manufacturers that have an in-house R & D Center a weighted tax deduction of 150 percent of expenditure incurred by a specified company, on scientific research in the in-house R & D centers, 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 percent are effective till 31st March, 2020; afterwards the weighted tax deductions will be 100 percent.

Apart from the above, each Indian state offers additional incentives for industrial projects. These are specifics viz. 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. Additional incentives are also provided 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 Northeast, Jammu & Kashmir, Himachal Pradesh, and Uttarakhand.

Also, the Export Promotion Capital Goods Scheme, Duty Drawback Scheme, and Merchandise Export from India Scheme are instrumental to incentivize exports.