The Indian chemical industry has been undergoing significant transformation, driven by a mix of government-led initiatives, private sector investments, and global strategic shifts

The Indian chemical industry is undergoing a transformative phase of accelerated growth, positioning itself as a key player in the global chemicals value chain. Driven by rising domestic consumption, robust export potential, and increasing demand from end-user industries such as agriculture, pharmaceuticals, automotive, and construction, the sector has become a cornerstone of India’s industrial landscape. Contributing over 7% to the national GDP and ranking among the top six producers globally, the industry is expected to reach a market size of $300 billion by 2025.

India's chemical market is currently valued at $220 billion and is projected to reach $383 billion by 2030, reflecting a compound annual growth rate (CAGR) of 8.1% from 2021 to 2030. This expansion is driven by robust domestic consumption and increasing demand from end-use industries. The sector attracted cumulative foreign direct investment (FDI) inflows of $21.7 billion from April 2000 to September 2023, benefiting from 100% FDI under the automatic route, which bolstered investor confidence and facilitated growth. 

Major Investments and Capacity Expansion

Indian chemicals and petrochemicals sectors received significant attention, with the government anticipating $87 billion in investments over the next decade to meet rising demand. This initiative aims to increase annual consumption from the current 25-30 million metric tons to 46 million tons by 2030. 

Among Chemicals, specialty chemicals emerged as a high-growth segment, reaching nearly $40 billion by 2023 and is poised for continued growth at a 10-12 per cent CAGR, driven by innovations and increasing demand across various applications. Agrochemicals also showed promising growth prospects, with a projected CAGR of 8.3% until 2027, supported by the expanding agricultural sector and the need for enhanced crop protection solutions.  For FY24–25, Indian chemical companies have collectively committed significant capex, with estimates ranging from Rs. 30,000–40,000 crore across key players, based on prior announcements and ongoing projects. 

Policy Reforms and Government Initiatives

The Indian government implemented several policy measures to support the chemical industry. Union Chemicals and Fertilizers Minister J P Nadda emphasized the government's commitment to addressing challenges faced by the chemical industry. He assured necessary policy interventions to boost the sector's growth and highlighted the importance of reducing imports, enhancing research and development, and improving skill development.

One of the key initiatives is the Production-Linked Incentive (PLI) Scheme, which offers companies incentives on incremental sales from products manufactured in domestic units. This scheme aims to boost the country's manufacturing capabilities and reduce reliance on imports. In the Union Budget for 2023-24, the Department of Chemicals and Petrochemicals was allocated approximately US$ 20.93 million to support this endeavor.

Additionally, the government has been developing Petroleum, Chemicals, and Petrochemicals Investment Regions (PCPIRs) around the country's refineries. These specialized zones are designed to facilitate petroleum and petrochemical production by leveraging shared infrastructure and support services, thereby accelerating industrial development.

To further promote the industry's growth, the Chemical Promotion Development Scheme (CPDS) has been established. The scheme provides grants-in-aid to various organizations and industry associations to conduct workshops, seminars, and studies. The insights gained from these activities help the Department of Chemicals and Petrochemicals formulate informed policy decisions.

The Sustainability Push

The industry has been increasingly focusing on sustainability as a core part of its growth strategy. Recognizing the environmental challenges posed by rapid industrialization, many companies within the sector are adopting green chemistry principles, circular economy practices, and cleaner production technologies to reduce their ecological footprint. There is a growing shift toward using renewable feedstocks, energy-efficient manufacturing processes, and waste minimization techniques. Leading players are investing in R&D to develop biodegradable alternatives and reduce dependence on fossil fuels.

Regulatory frameworks, such as the Responsible Care initiative promoted by the Indian Chemical Council (ICC), are being widely adopted by companies to ensure adherence to environmental, health, and safety standards. The government, too, has introduced various policy incentives and compliance mechanisms to encourage sustainable manufacturing practices and promote green infrastructure.

Collaboration between industry, academia, and startups is fostering innovation in areas such as carbon capture, green hydrogen, and bio-based chemicals. Furthermore, companies are publishing sustainability reports and aligning with global ESG frameworks, showcasing a clear commitment to transparency and long-term environmental stewardship.

Challenges Galore

Despite its strong growth potential and strategic importance, the chemical industry continues to grapple with deep-rooted challenges that threaten to undercut its global ambitions. One of the most pressing issues is the complex and often inconsistent regulatory environment. Companies must comply with overlapping central and state-level laws governing environmental safety, hazardous waste handling, and industrial licensing. The lack of a harmonized regulatory framework like the EU's REACH creates delays, raises compliance costs, and exposes firms—especially small and mid-sized ones—to legal uncertainties.

Infrastructure constraints remain a major bottleneck. The sector suffers from poor connectivity, outdated port facilities, and a shortage of dedicated chemical logistics infrastructure such as hazardous material corridors and integrated industrial parks. Another critical challenge lies in the volatile supply and pricing of raw materials.

India imports a large portion of its chemical feedstocks, intermediates, and specialty inputs, making it highly vulnerable to global supply chain disruptions, geopolitical tensions, and foreign exchange fluctuations.

The absence of backward integration amplifies this exposure, with manufacturers often forced to absorb cost shocks that squeeze margins and hinder planning. The industry faced challenges, particularly from increased input costs and global economic dynamics.

Moreover, the sector faces a widening talent and innovation deficit. While India produces a large number of chemical engineers, there is a shortage of professionals skilled in emerging technologies such as digital process control, AI-enabled manufacturing, and sustainable product design. R&D spending remains modest, and industry-academia collaboration is limited, curbing innovation in high-value segments like advanced materials and specialty chemicals.

Outlook Remains Bright

The Indian chemical industry is poised for a strong rebound, driven by robust domestic demand, global supply chain diversification, and government support for manufacturing. With the sector expected to grow at a CAGR of 8–10%, specialty chemicals, agrochemicals, and green chemistry segments will lead the charge. China+1 strategies adopted by global firms will continue to benefit Indian exporters, while rising capital investments—particularly in petrochemicals and specialty production—will strengthen capacity and innovation. Policy reforms, PLI schemes, and a push for sustainability and circular economy practices are set to enhance competitiveness.

While the volatile raw material prices, regulatory compliance, and global geopolitical uncertainties may temper short-term growth but overall, 2025 is expected to be a pivotal year, positioning India as a key global hub in chemical manufacturing and exports.