D&B - Indian Chemical Industry

Indian Chemical Industry 2010


This chapter refers to various regulations that govern the organic chemical industry in India. The organic chemical industry faces two types of regulations: general regulations, and human safety and environmental regulations. While general regulations are those that are applicable to almost all industries in the country, discussion on human safety and environmental regulations is specific to the organic chemical industry. While this chapter covers the trade policy in brief, it also covers the anti-dumping measures initiated in the country, specifically with respect to organic chemicals.


Ever since economic reforms were ushered in through the New Industrial Policy in 1991, industrial licensing in/for most industries was removed except for those that involved environmental, human safety, and strategic considerations. In the chemical industry, only production of hazardous chemicals requires licensing. Industries not requiring compulsory licensing have to file an Industrial Entrepreneurs’ Memorandum (IEM) to the Secretariat for Industrial Assistance (SIA). No industrial approval is required for such exempted industries. Furthermore, a 100% approval is granted to FDI in the chemical industry.

The government has shortened the list of reserved chemical items for production in the small scale sector, thereby facilitating greater investment in technology upgradation and modernisation in the chemical sector. Diethyl phthalate, diocytyl phthalate, chlorinated paraffin wax, barium carbonate, and zinc sulphate are the chemicals that were reserved for small scale manufacture as of February 2008. The government has announced a policy for setting up Petroleum, Chemicals and Petrochemical Investment Regions (PCPIR). These regions are expected to attract major investments, both domestic and foreign, which will have enabling infrastructure that provides conducive and competitive environment for setting up manufacturing units. Such policies or regulations help the players in setting up chemical plants. Additionally, the government offers certain tax incentives to increase firms’ spending on research and development.

The government controls distribution of natural gas in the country and allocates the same to various sectors, as the country faces natural gas scarcity. Fertiliser units, liquefied petroleum gas extraction units, and natural gas-based power plants are the top three priority sectors with respect to the allocation of natural gas. The chemical industry is listed as number six in the priority list.

Until 1993 with respect to industrial alcohol, the government regulated prices and distribution of molasses and prices of alcohol, which were deregulated later on.

Human Safety and Environmental Regulations

The government has certain human safety and environmental regulations in place, which chemical manufacturing units in India need to adhere. The Bhopal gas tragedy in 1984 was one of the worst accidents in the history of the chemical industry in India. This disaster was an eye-opener after which human safety regulations for factories in India were tightened considerably.

The first human safety regulation in the country was the Explosives Act 1884. This act regulates the manufacture, use, and transport of explosives. Similarly, the Indian Factories Act of 1948 deals with worker health and welfare. Specification standards for storage vessels and transportation of compressed gases are dealt under the Static & Mobile Pressure Vessels Rules of 1981.

Despite these regulations, there existed few lacunae, for example, there was not much clarity on the distinction between hazardous and non-hazardous facilities; disclosure of emergency response information was not mandated; regulatory bodies lacked power to shut down plants even when they had evidence that proved the safety violation by plants.

After the Bhopal gas leak in 1984, various laws were enacted to increase human safety and to take care of these lacunae. The Indian Factories Act 1948 was amended to introduce a safety culture. The Environment Protection Act was passed in 1986 to protect the environment through prevention of major incidents. In 1987, the Air Act was implemented to prevent, control, and abate any form of air pollution. In 1989, the Hazardous Waste Management and Handling Rules
were formulated to provide guidelines for management and transport of hazardous waste.

In 1991, the Public Liability Insurance Act was passed with respect to public safety. This Act insisted on firms’ needs to allocate/provide insurance cover for any incident that was likely to affect residents in the vicinity of their production units. Also, the Environment Protection (Second Amendment) Rules formulated in 1992 required all facilities under the Environment Protection Act 1986 to conduct annual environmental audits and report to their respective State Pollution Control Boards.

In a bid to control environmental pollution the government has prescribed limits on the emissions and effluents released by organic chemicals industry.

The table on emission standards specifies the limits for the commonly released emissions from factories producing organic chemicals. These compounds may be emitted during the various processes carried out in an organic chemical plant. The standards for effluents are applicable to any kind of liquid released from an organic plant into natural or waste streams, which may come into contact with any form of life.

The effluents listed in the table are those that are commonly released from various organic chemical factories. Though these regulations more or less address most of the concerns regarding human safety and environment protection, their effectiveness depends on implementation and enforcement.

India is a signatory to the Chemicals Weapons Convention, a universal, non-discriminatory, multilateral disarmament treaty that bans the development, production, acquisition, transfer, use and stockpile of all chemical weapons. According to this convention, countries that produce and use chemicals that can be easily converted into chemical weapons have to be open and transparent about the way they use these chemicals. India passed the Chemical Weapons Convention Act in 2000, which came into force in 2005 and required the chemical industry to declare and verify plant sites for various categories of organic chemicals.

In addition, there are other international regulations that companies in India have to adhere to if they need to export their products to these markets. For example, the US has a Toxic Substances Control Act (TSCA) that requires testing of chemicals coming into the US, if there is insufficient data on the effects of all forms of contact with the chemicals being imported. The EU has introduced a legislation called REACH in June 2007 to set up high standards for protection of health and environment while safeguarding competitiveness of the industry. The proposal also provides for evaluation, authorisation and restriction of chemicals produced and imported in to the EU. The legislation may have far-reaching implications for the Indian chemical industry and may result in reduction of India’s export competitiveness to countries in the EU, unless steps are taken by exporters to face this challenge.

According to the legislation, the first step that exporters from India must take is to preregister their products that are exported to the EU. This needs to be done between the first of June 2008 and first of December 2008. Pre-registration will provide exporters a time window to generate and submit chemical safety reports to the European Chemical Agency for registering their product; the timeline will be determined by annual volume handled. Products that will be handled
in excess of 1,000-tpa will need dossiers to be submitted by end-2010; while products sold above 100-tpa have time till mid-2013 and products over 1-tpa have time until mid-2018.

Trade policy

Chemicals are an important component in India’s trade basket; hence the trade policy of the country plays a key role in the conduct of the chemical industry. Trade Policy in India is formulated with an aim to increase exports. Generally, it is expected that higher exports will increase employment generation; hence, exports are encouraged by the government through a range of schemes. For example, the packing credit scheme facilitates exports of goods; under this scheme,
credit is made available to exporters even if there is no export order in hand. This scheme offers cash credit and overdraft facilities at a concessional rate of interest. The pre-shipment foreign currency scheme allows exporters to avail funds at international interest rates, thereby providing them access to lowest possible interest rates.

The duty entitlement passbook scheme (DEPB) is another scheme that helps exporters to increase their competitiveness in the export market. According to the DEPB, customs duty is exempted on imported inputs required to manufacture products that are exported. For example, few pharmaceutical producers in the country use this scheme to import acetone duty-free on the basis of their exports of pharmaceutical products.

In addition, there are various tax incentives offered for exports such as tax holidays for export-oriented units in free trade areas and tax deduction of 100% on export profits. India's main trade measure is tariff, which also is a major source of revenue for the government. There has been substantial reduction and harmonisation of tariffs among nations since members of the WTO have signed the Chemical Tariff Harmonisation agreement in the Uruguay round of talks. As India is a member of WTO, it has also reduced its peak customs duty. Most chemicals are in the open general list of imports and thus imports of chemicals, intermediates, and end products are freely allowed into the country.

India has signed few bilateral as well as regional trade agreements to increase market access for its exports. India has free trade agreements with Sri Lanka, Nepal, Bhutan, and Thailand. From December 1, 2007, India has an agreement with Singapore under which there has been reduction or elimination of tariffs on imports of more than 500 products from Singapore. The agreement with Singapore is a Comprehensive Economic Cooperation Agreement (CCEA), which includes free trade agreement in goods, services, investment, and also identifies areas of economic cooperation. Negotiations for CCEA are on with Mauritius, South Korea, Japan, and the EU. India also has a free trade agreement called South Asian Free Trade Agreement (SAFTA) with member countries of SAARC. India signed the Asia Pacific Trade Agreement (APTA) in 1975 under which it offered tariff preferences on more than 500 tariff lines at the six digit level. India also has signed preferential trade agreements with Afghanistan, Chile, and MERCOSUR (Argentina, Brazil, Paraguay and Uruguay). Furthermore, India is a participant in the Global System of Trade Preferences (GSTP) among developing countries. In this forum, India offers tariff preferences for a limited number of products. Also, under the Generalised System of Preferences (GSP), India receives preferential access to markets of Bulgaria, Canada, the European communities, Japan, New Zealand, Norway, Russian Federation, Turkey, Switzerland, and the United States.

Anti-dumping measures

India has initiated anti-dumping measures as and when required to avoid dumping of goods into the country. Generally, domestic producers initiate anti-dumping investigations through a written petition to the Directorate General of Anti Dumping and Allied Duties. If the designated authority finds instance of dumping, then an antidumping duty or safeguard duty is applied on imports to make good trade distortions caused by dumping and resultant injuries caused to domestic industry. Majority of these measures have been targeted at chemicals, plastics, and rubber products, base metals; and textiles and clothing.


The organic chemical industry consists of a large number or products with varying dynamics for each product. Rapid growth of the economy in the past few years has ensured growth in this sector. This trend is expected to continue in the near future. The current global financial crisis and the resultant slowdown in the global economy have several implications for the Indian organic chemical industry. Fall in exports, increase in imports and stagnant or lesser production are some of the possible outcomes in the current as well the next fiscal year.