The global chemical industry is witnessing a prolonged downturn, primarily driven by supply side pressures impacting profitability and reinvestment economics. Significant overcapacity in key building blocks, high energy and feedstock costs, coupled with slowing demand across multiple end-use sectors, have significantly compressed margins over the last few quarters. Geopolitical uncertainties, supply chain disruptions (such as the Red Sea and containers crisis), inflationary pressures, and a sluggish recovery in major economies have further exacerbated the situation. 

Today, high-cost chemical assets worldwide are facing immense pressure, and India is no exception. Companies are prioritizing cost efficiency, and assets burdened with high operating expenses, whether due to energy costs, feedstock disadvantages, or aging infrastructure, are prime candidates for rationalization. Many global players are restructuring their portfolios, shutting down unviable plants, or shifting focus to lower-cost production hubs such as India. 

Riding on the boom in the chemical sector during the Covid period, most Indian chemical companies immensely benefited and expanded capacities and margins. The Indian chemical industry has been a strong performer, delivering impressive returns over the past five years. However, profitability has flattened in the last two years due to global headwinds, domestic challenges, and a cyclical downturn, including a slowdown in end-user industries. While India's domestic market remains a bright spot for demand growth and operating costs being amongst the lowest in the world, they still face challenges due to surplus capacity, technology gaps, and feedstock pricing. Additionally, competition from cheaper imports, particularly from China is intensifying. From here on, how does the industry at large generate demand to absorb the significant overcapacity in key building blocks and still balance the markets thereby protecting profitability and long-term industry viability is something industry must be watchful of. 

Long-Term Promise 

Despite these challenges, India is well-positioned for a long term growth in the chemical sector, supported by sustained domestic demand, regulatory expertise in global compliance standards, cost competitiveness, and increasing R&D investments in custom formulations and green chemistry. Nevertheless, issues such as infrastructure limitations, the need for technology partnerships, and sustainability mandates must be addressed. Expanding production capacity, fostering global collaborations, and focusing on eco-friendly innovations will be crucial in strengthening India’s role in the global supply chain. 

India has significant latent domestic demand across the C1 to C9 value chains, spanning derivatives used in pharmaceuticals, agrochemicals, polymers, coatings, and specialty chemicals. However, several internal and external factors have hindered the global competitiveness of Indian chemical companies, causing them to lag in the global positioning. Indian chemical Industry bases its foundation on core segments and continues to see significant investments in core chemistry, green chemistry and mineral-based chemicals. 

Core chemistry, particularly cluster-based segments like Chlor-Alkali are the foundation of India’s chemical industry. Leading players such as DCM Shriram, Grasim, Atul, Aarti, and Epigral are expanding into downstream and sub-stream chemical value chains to enhance integration and value addition. Additionally, large conglomerates, including Adani and Reliance, are entering the Chlor-Alkali space, signalling the sector's strategic importance. Likewise, the Aditya Birla Group has partnered with Lubrizol to strengthen its presence in the PVC value chain, further reflecting the growing interest in scaling up and specializing in foundational chemistries. 

Green chemistry is gaining traction as Indian chemical companies shift towards sustainable, plant-based alternatives. Leveraging India’s rich agricultural base, the industry is investing in bio-based chemicals for pharma, healthcare, and specialty additives. Global awareness and preference for natural over synthetic materials are placing immense importance on sustainable inputs for all end products. 

Mineral-based chemicals are vital to India’s chemical industry, serving as key feedstocks for fertilizers, pharmaceuticals, construction, and specialty chemicals. Despite abundant mineral reserves, India remains import-dependent in critical segments such as phosphates, soda ash, titanium dioxide, rare earths, and lithium due to limited local processing and refining capacity. Strengthening beneficiation, backward integration, and advanced purification can enhance self-sufficiency. Sustainability efforts and global partnerships will be essential in building a resilient domestic supply chain and reducing import reliance. 

Government initiatives such as the Production Linked Incentive (PLI) scheme and "Make in India," along with backward integration efforts and global partnerships, are driving self-sufficiency. The government's focus on infrastructure development and industry support, and development of large-scale chemical industry zones such as Dahej and Vizag, will further accelerate targeted growth tapping into global markets, making India an increasingly attractive destination for chemical manufacturing and exports. 

India’s Chemicals Play: Emerging as a Global Investment Hotspot 

As global supply chains diversify under the China Plus One strategy, India has emerged as a strong contender due to its cost advantages, skilled workforce, and a growing domestic market. Formulation-based chemicals, which involves blending active ingredients with excipients or additives, presents a significant opportunity for India as they are critical across industries such as pharmaceuticals, agrochemicals, coatings, adhesives, and personal care.  

Additionally, India faces tough competition from European chemical giants, which have extensive global subsidiaries and joint ventures, enabling them to meet rising global demand more efficiently. However, to fully capitalize on this shift and remain globally competitive, Indian chemical companies must scale up capacity, enhance infrastructure, and invest in R&D to meet global quality and regulatory standards.  

To attract global demand, exports must be treated as a dedicated business vertical, ensuring that international firms have confidence in India's scalability and quality standards.The Indian chemical industry's pivotal role within the global value chain has ignited significant interest from both strategic and financial investors worldwide. This surge in investment is driven by a confluence of factors, including the pursuit of direct market access, portfolio expansion, cost-effective manufacturing capabilities, robust distribution network enhancement, and the potential for substantial financial returns within a high-growth market.  

Notable transactions include the International Chemical Investors Group (ICIG) acquiring a majority stake in Hyderabad-based Vasant Chemicals, a manufacturer of specialty chemicals and pharmaceutical intermediates. Likewise, private equity firm Bain Capital made a financial investment by acquiring Porus Labs, a Hyderabad-based specialty chemicals company operating in segments such as specialty polymers, electronic chemicals, and agrochemicals. This move seeks to establish a platform in the specialty chemicals contract development and manufacturing sector, leveraging Porus Labs' existing position.  

Several global chemical distribution companies, including IMCD, Brenntag, and Azelis, continue to pursue acquisitions in the Indian chemical distribution unorganized market to gain access to key markets, products, and customers. 

R&D to ROI: Feuling the Innovation-Led Investment Wave 

To accelerate strategic growth, Indian chemical companies are actively pursuing outbound transactions and partnerships, aiming to acquire advanced technology and R&D capabilities, expand their global footprint, fortify supply chains, and diversify their product portfolios with innovative chemistries. Prominent transactions include UPL's acquisition of Arysta LifeScience and ChrysCapital-backed Safex Chemicals' acquisition of UK-based Briar Chemicals to expand its global footprint. Additionally, large Indian corporations such as Reliance Industries Limited (RIL), Pidilite, and DCM have formed partnerships to gain access to advanced technologies.  

Indian companies have made strategic and ambitious moves by acquiring renowned global businesses from German family-owned enterprises. Remarkable examples include the Murugappa Group's landmark acquisition of Huber and Sudarshan Chemicals' transformative acquisition of Heubach, strengthening their international footprint and industry leadership. 

Domestic PE funds have also been focusing on high-growth chemical businesses, undertaking control transactions, and executing bolt-on acquisitions such as IndiaRF’s acquisition of Anthea Aromatics, Premji’s investment in Best Value Chem, and Motilal PE’s investment in Megafine. Advent, after acquiring RA Chem, further expanded through the bolt-on acquisitions of ZCL and Avra and integrated them into the Cohance platform. 

Future-proofing India's chemical industry and enhancing its global competitiveness demands a multi-faceted approach. This includes: bolstering value chain integration by investing in domestic production and strategic global technology partnerships, scaling operations through targeted M&A to expand market share and access advanced chemistries, integrating decarbonization principles via ESG initiatives, green chemistry, and circular economy practices, and optimizing supply chains and leveraging trade policies to maintain cost competitiveness in a dynamic global market.  

The Indian chemical industry must also consider upcycling from ‘volume to value’, to help balance out supply-demand, protect margins and allow for sustained reinvestment economics.