• 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

  • Trade in most of the chemicals is free except for those attracting provision of international conventions.

  • A focus on new segments such as specialty and knowledge chemicals.


  • 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.


  1. 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.