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The Indian Chemical Industry – Classification and Characteristics

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Chemical Industry in India

The Chemical industry is among one of the most significant manufacturing sub-sectors in India. The industry has its history traced back to pre-independence days, when only few goods were manufactured indigenously. The sector has significant contribution towards the economy, and accounted for over 6.5% of GDP in 2009. The sector also has significant presence in terms of exports and imports.

Classification of the Indian Chemical Industry

The sector is highly diversified and is classified in three different categories namely Basic Chemicals, Specialty Chemicals and Knowledge Chemicals.

i) The Basic chemicals are high volume, low value added products with limited product differentiation across manufacturers. Stringent regulations exist in the said category and include Petrochemicals, Fertilizers, and Inorganic chemicals industry.

ii) The Specialty segment consists of products with high value addition having great product differentiation. Low capital investment is required in the segment and includes Adhesive sealants, Catalysts, Industrial gases, Paints, dye stuffs and varnishes to name a few.

iii) The Knowledge segment includes differentiated Chemical and biological substances with high cost of R&D and Marketing. This includes Plastic additives, Agrochemicals, Pharmaceuticals, Biotechnology.

Characteristics of the Indian Chemical Industry

Some of the characteristics of the Indian Chemical industry in India are elucidated as under:

  • Potential for high domestic demand as per capita consumption increases
  • Small scale of operation
  • High degree of fragmentation
  • Limited emphasis on export due to focus on domestic market
  • Cost competitive R&D facilities when compared globally. Thanks to the government incentives.

India enjoys the position of being ranked 12th in the production of chemicals worldwide by volume. Also the country is the 3rd largest in Asia. Since 1991 when the trip principle of LPG was implemented and soon after TRIPS was mandated by WTO in 1995, the sector saw significant transition from producer of low value basic chemicals to higher value knowledge chemicals. Knowledge chemicals involve considerable investment pertaining to intellectual property and patents.

Some of the lucrative sub-sectors of the chemical industry are:

1) Basic Chemicals – The basic chemical sub-sector has reached a mature stage. It is expected to grow at the pace of GDP. One of the biggest challenges of the sub-sector is the existence of old plants whose history can be traced back to pre-liberalization era, as a result of which they have constrained capacity to compete in the global market. Also the cost of raw materials is high which experience fluctuations. Some of the well performing segments of the basic industry are:

  • Petrochemical – The industry undoubtedly has immense potential as the domestic per capita consumption of petrochemical derivatives is growing. Current domestic per capita consumption is only a fraction of the world level however, two main segment polymers and fiber intermediates are expected to experience huge demand. Some of the major industry players are Reliance India Limited, ONGC, Haldia Petrochemicals, GAIL, BPCL.

Read about Oil & Gas Companies in India.

  • Inorganic Chemicals and Fertilizers – The industry again has a low domestic consumption compared to the global level. It is expected that the sector might experience huge growth in recent time. The agriculture industry provides a huge market potential. However, efficient rural marketing and sales needs to be implemented at the grass root level so as to capture the market. There are over 130 fertilizer manufacturing plants in India which produces Urea, Complex Fertilizers, etc. Some of the major companies are IFFCO, National Fertilizers Limited, RCF, Tata Chemicals.

2) Specialty Chemicals – The sector is highly fragmented and majority of the industries capture the domestic demand. The sector accounts for about 5% of the universe of chemicals. Some of the leading companies operating in the sector are Akzo Nobel, Dow, Du Pont, and Mitsubishi.

It is expected that the chemical industry as a whole will grow subsequently as the demand is rising and the per capita consumption is rising too. Thanks to the industrial development and improving living standard of the people.


Niraj Satnalika

Niraj is an MBA in International Business (Finance). Prior to this he completed B.Tech in Electronics and Instrumentation. He is currently working with Confederation of Indian Industry (CII), Kolkata in capacity of Consultant. Satnalika is actively involved with an NGO and works towards promoting education among the underprivileged.

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