Stressing on the need for greater emphasis on innovation and research and development in the Indian chemical industry to make it more competitive globally, the Indian Chemical Council (ICC) has called for more investments and tax benefits in this regard.

Submitting its pre-budget memorandum for 2011-12 to the Department of Chemicals and Petrochemicals (DCPC), the ICC said that establishment of R&D facilities is very capital intensive.

"Though India has acquired significant position in speciality chemicals sector, especially in pharmaceuticals, fine chemicals and agrochemicals, the industry?s expenditure on R&D is hardly 1 per cent of its turnover. This is very low compared to other major countries where it ranges from 3-7 percent depending on specific sectors," it said.

According to the ICC, the Indian chemical industry needs financial incentives to pursue the course of innovation in the form of soft loans at reduced interest rates with longer moratorium repayment periods; and zero import duty on capital goods imports for R&D activities.

"To encourage R&D, the government should extend income tax exemption of 200 per cent of expenditure in R&D beyond 2012 by additional 10 years."

The ICC also called for tax benefits of minimum three years for profits on new products.

Besides this, the ICC wants restoration of depreciation allowed for income tax at 25 per cent.

"The wear and tear of plant and machinery in the chemical industry is relatively much higher as compared to other industries. The depreciation allowed for the purpose of income tax was earlier 25 per cent which was brought down to 15 percent. It is requested that same may be restored to 25 percent," the ICC said.