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

Source: PIB
GS II: Government policies and interventions for development in various sectors and issues arising out of their design and implementation

Overview

1. News in Brief
2. Detailed Report
3. Conslusion

Why in the News?

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

News in Brief

• This report offers an extensive analysis of India’s chemical sector, highlighting both opportunities and challenges.
• Also, outlining a pathway for positioning India as a key player in global chemical markets.
• The global chemical industry is undergoing a major transformation, driven by shifting supply chains, demand for speciality and green chemicals, and heightened focus on innovation and sustainability.
• India’s chemical sector, while significant in size and GDP contribution, remains fragmented and constrained by infrastructure gaps, regulatory inefficiencies, and low R&D intensity.

Detailed Report

• India’s 3.5% share in global chemical value chains and its chemical trade deficit at USD 31 billion in 2023, underscore its high dependence on imported feedstock and speciality chemicals.
• However, targeted reforms encompassing a comprehensive range of fiscal and non-fiscal interventions will enable India to have a USD 1 trillion chemical sector and achieve 12% GVC share by 2040, thus becoming a global chemical powerhouse.

Challenges

• A key issue is the country’s heavy reliance on imported feedstock, which contributed to a USD 31 billion trade deficit in 2023, stemming from limited domestic backwards integration.
• Infrastructure gaps, outdated industrial clusters, and high logistics costs have created a cost disadvantage compared to global peers.
• Compounding this, 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.
• Regulatory delays, especially in environmental clearances, further stifle industrial agility.
• Additionally, the sector is hampered by a 30% shortfall in skilled professionals, particularly in emerging areas such as green chemistry, nanotechnology, and process safety.

Interventions for Growth

• Empowered committee at the Central level along with creation of a Chemical Fund under the empowered committee with a budgetary outlay for shared infrastructure development, VGF, etc.
• Composition of a Chemical Committee for ports to advise on and address infrastructural gaps in chemical trading at ports.
• Opex subsidy scheme :
  • Incentivize incremental production of chemical 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
• 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.
  • Acquiring access to specific technologies available outside India through fostering MNC partnerships
• Fast-track environmental clearance
  • Fast-track environmental clearance with transparency and accountability.
  • Simplify and fast-track EC clearance process through setting up an audit committee under DPIIT to monitor timelines and compliance and publish periodic reports and give more autonomy to EAC.
• Talent and skill upgradation

Vision for 2030

• The vision for 2030 is for India to become a global chemical manufacturing powerhouse with a 5%-6% share of the global chemical value chain.
• The sector aims to double its current production levels and reduce the trade deficit significantly from USD 31 billion in 2023 to reach a Net Zero trade balance in Chemicals.
• The initiative will generate an additional export of USD 35-40 billion generating around 7 lakh skilled jobs.
• This growth will be supported by the development of world-class chemical clusters, advanced technology adoption, streamlined regulatory processes, and a highly skilled workforce, positioning India among the top global leaders in the chemical industry.

Conclusion

• India has significant potential to become a global leader in the chemical industry.
• Achieving this goal requires focused efforts from the central and state governments, as well as industry stakeholders.
• By addressing the existing challenges and leveraging the proposed interventions, India can enhance its competitiveness, attract investments, and build a robust chemical sector capable of leading the global value chain.

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