The Future of India's Chemical Industry

Executive Summary India’s chemical industry is today the world’s 6th largest, valued at USD 114 billion and growing at 7-8% annually, driven by China+1 strategies and rising domestic and export demand.

The sector remains highly import dependent, with ~60% of raw materials sourced abroad. This makes it vulnerable to supply-chain disruptions, but many companies are mitigating risks through localisation, selective sourcing and better risk management.

Smart technologies like AI, digital twins and integrated planning tools are enhancing efficiency and sustainability, though smaller firms face challenges around cost and access to quality data.

Limited R&D investment, a small talent pool and weak academia-industry collaboration hinder India’s global competitiveness, though there are notable examples of India-led innovation.

Sustainability is a potential growth driver, though adoption remains weak on account of financial barriers and limited customer willingness to pay a premium for ‘green’ products.

Stronger alignment with global regulatory frameworks, streamlined single-window approvals and expanded financial incentives would help drive industry growth.

. Overcoming supply-chain issues… Chemical manufacturers in India remain highly import dependent, with ~60% of raw materials currently sourced abroad. This has become a growing liability, given volatile global prices, a depreciating currency and supply chain issues stemming from geopolitical disruptions. While dependence on imports may persist in areas where India lacks a natural advantage, innovative approaches are emerging to mitigate these risks:

Selective sourcing and supplier management : Klüber now sources 40% of its raw materials from trusted suppliers in Germany and the US while producing the remaining 60% in-house. Together with strong risk management practices, this allows it to navigate serious supply-side disruptions.

Localisation : Elantas Beck is championing localisation to reduce its reliance on foreign suppliers. By exploring local sources and collaborating with domestic manufacturers for items like chrysalis, phenolics and solvents, it has lowered its exposure to geopolitical risks. The company has also signed a long-term agreement with a single supplier, committing to purchase fixed volumes from newly developed local capacities, thereby ensuring supply-chain stability.

Risk assessment and preparedness : Aside from exploring local production, Godrej Chemicals is building regular risk reviews and proactive planning into its processes. This allows it to mitigate any unforeseen disruptions and navigate potential Black Swan events.

. …and moving up the technology ladder Smart technologies are a prime driver of growth in the chemicals sector, and digitalisation is improving operational efficiency and effectiveness in myriad ways. Many organisations, for instance, are integrating AI into their manufacturing, supply chain and marketing functions. Tellingly, many organisations now see IT as a core business function. Elantas Beck has launched several ‘lighthouse projects’ focused on inventory optimisation, supplier identification and recipe automation. Indian Oil Corporation has implemented an integrated planning tool that optimises supply chain processes by consolidating planning data. At the same time, its integrated shipping tool automates chartering, operations and financial processes, enhancing efficiency and reducing costs. Thane-based Ingenero , meanwhile, has developed an AI-powered solution for chemical companies, IngeneroX, that optimises supply chain and manufacturing with data-driven insights and digital twins that blend traditional and AI models. This enables remote tracking, resource recovery, energy savings and sustainable operations. It also supports safe hazardous waste disposal, promoting environmental and public health.

Despite the notable progress on digital adoption, there remain challenges. Data is often siloed; different parts of the business use varied tech tools; and there are, at times, inconstancies in implementation. Moreover, smaller companies lack the scale needed to justify large tech investments. For such companies, it is important to rethink the underlying business processes and tease out all possible efficiencies. Equally, though, as the experience of Western MNCs shows, adopting cutting-edge solutions, such as remote operations management, can help build scale . For instance, remote management can allow an expert to monitor multiple sites from a single location. Finally, as elsewhere in the economy, infrastructure – and particularly the availability of reliable power at scale – remains a constraint. Many organisations, for instance, are still forced to build their own back-up power plants.

. An innovation deficit … Historically, Indian chemical manufacturers have under-invested in R&D, limiting their global competitiveness. While MNCs recognise India as a cost-effective production hub, for most of them, the R&D mandate continues to rest with HQ. Most such firms have only small local teams or rely on their regional hubs for innovation. A serious shortage of high-end talent exacerbates the issue, with just ~1,400 chemical engineers graduating annually from India’s top universities, many of whom opt for higher studies or switch fields, leaving a sparse availability of PhD candidates. In turn, this drives a heavy reliance on foreign talent for R&D work. Also stymying the local R&D ecosystem is poor collaboration between Indian educational institutions and industry. Unlike in many developed markets, where academia-industry partnerships thrive, such collaborations are only just starting to emerge in India, constraining the opportunities for innovation, knowledge transfer and advanced problem-solving. An exception to this rule is Klüber , which has a dedicated R&D department in India focused on innovating in specialty chemicals. Five years ago, its local branch developed a high-tech grease for steel plant caster applications, and Klüber has since achieved a 90% market share in this segment.

. …and a limited focus on sustainability Sustainability is an emerging growth area for India’s chemicals industry, though it remains at a nascent stage. Awareness around the issue is spreading, and demand for sustainable alternatives is growing in specific segments, such as durable powder coatings for architectural applications. However, most customers are unwilling to pay a premium for eco-friendly products, and it may be years before environmental concerns are prioritised over cost-effectiveness. At the supplier’s end, despite the many incentives offered by government, there are often financial barriers to investing in green technology, particularly among smaller firms. Overcoming this may require an internal cultural shift.

There are, however, some bright spots in this space. Jotun , a Norwegian MNC, is setting an example with its sustainability initiatives. Its remote-operated hull-cleaning device, used in conjunction with specific paint solutions, reduces fouling on ships, thereby bringing down fuel consumption and emissions. The BEIL Group , meanwhile, has built and operates several hazardous-waste incineration plants across India. These plants burn hazardous materials at high temperatures, generating steam to produce electricity while reducing waste volume and eliminating toxic organic compounds. Although metals like lead and chromium cannot be destroyed, the process treats diverse materials like liquids, gases, sludge and contaminated soil, contributing to energy recovery and environmental safety. Such innovations highlight a broader industry shift – towards integrated, sustainability-focused solutions.

. Needed: Stronger policy support Public policy has and continues to play a pivotal role in shaping India’s chemicals industry, which is, from all accounts, on the cusp of transformative growth. As it scales up on R&D, embraces sustainable practices and leverages digitalisation, the sector is positioning itself for a greener and more tech-enabled future. However, realising this vision will require continued investment in supply chain resilience as well as policy support from the government. Our discussions with sector leaders indicate that, looking to the next decade, the government might look to tweak policy and regulation in several ways to support growth:

Learning from global frameworks: Drawing insights from international regulatory frameworks like the EU’s REACH or China's environmental standards can enhance India’s global competitiveness. Clear and consistent regulations aligned with global best practices can reduce the overall compliance burden and ensure a level playing field.

Streamlined approvals : Accelerating project turnaround times through fully implemented single-window clearance systems is critical. Faster environmental clearances, and quicker approvals for operational and factory setup can greatly accelerate the industry’s development.

Targeted incentives : While a host of Production-Linked Incentive (PLI) schemes indirectly benefit the chemical sector, they are limited in scope. Innovative new incentive programmes, such as tax rebates, GST benefits or subsidies for adopting eco-friendly practices, including adopting green technologies/energy, would encourage sustainable practices across the board.

Building up the compliance infrastructure : Government support in establishing shared compliance infrastructure – such as testing facilities and training centres – could help smaller firms meet stringent regulatory standards without having to bear disproportionate costs.

Transparent stakeholder engagement : Regular dialogues between industry and regulators would help identify challenges and co-create practical, industry-friendly solutions.