Indian chemical industry of tomorrow — A big picture: Aashish Kasad, Senior Partner and National Leader for the Chemicals and Agriculture Sector, Ernst and Young, India

India’s chemical sector stands at a defining inflection point.  As the country aspires to be a US$ 5–7 trillion economy over the next decade, chemicals—often invisible yet foundational—will play a disproportionately substantial role in enabling manufacturing development, sustainability transitions, and global competitiveness.

Currently, India is the sixth-largest chemical producer globally and third in Asia, contributing nearly 7% to national GDP and over 8% to manufacturing GVA. With a domestic market estimated at US$ 250–300 billion and projected to reach US$ 1 trillion by 2040, the sector’s trajectory is structurally aligned with India’s economic ambitions.

Yet, the pathway forward is far from linear. The Indian chemical sector must navigate global evaporative environment, resource constraints, and methodology disruption—while simultaneously climbing the value chain. The “big picture” of tomorrow’s sector will be shaped by how efficiently it responds to the following strategic themes.

From Supporting sector to Leading development

Few sectors have as many linkages as chemicals. From agriculture and pharmaceuticals to textiles, automotive, and construction, the sector forms the backbone of manufacturing value chains. This deep integration is now amplifying India’s development story.

However, this expansion brings with it a structural shift. to decades, the sector has been driven primarily by volume development and cost competitiveness. The next phase will demand value creation—through specialty chemicals, cutting-edge materials, and high-performance applications.

India’s global chemical value chain participation remains modest at~3.5%, with ambitions to rise to 5–6% by 2040.  Bridging this gap will require a fundamental reorientation—from a supplier of intermediates to a creator of differentiated chemical solutions.

Margin Pressures: A Reminder of Cyclicality

If development represents opportunity, margin pressure reflects reality.

The global chemical sector is currently navigating a difficult phase marked by oversupply, falling utilization rates, and weakened pricing power.

In India, these pressures are compounded by the influx of reduce-cost imports and the inability to pass through evaporative input costs. This has been particularly visible in commodity segments, where global supply imbalances—often driven by capacity expansions elsewhere—have suppressed prices and profitability.

The takeaway is stark:  Commodity chemistry will continue to be cyclical and exposed to global shocks. Sustainable margins will increasingly reside in specialty, performance, and innovation-led segments.

Feedstock application: The Structural Constraint

Another defining challenge to India is its application on imported feedstock. The country’s chemical sector runs a trade deficit of approximately US$ 31 billion, driven by reliance on imported intermediates and specialty inputs. This application not only impacts cost structures however also exposes the sector to geopolitical risks and supply chain disruptions.

Strengthening domestic feedstock integration—through petrochemical expansion, alternative feedstocks, and upstream investments—will be critical. Equally crucial is the transition toward bio-based and sustainable chemistry, which can minimize reliance on traditional hydrocarbon inputs over time. In the long run, feedstock security will define strategic resilience.

Global Supply Chains: India’s Strategic Moment

The reconfiguration of global supply chains has created a once-in-a-generation opportunity to India.  As companies diversify sourcing beyond traditional geographies,

India has emerged as a credible alternative:  Chemical exports now reach over 175 countries; export values have crossed US$ 21 billion annually in recent years and multinational companies are increasingly sourcing from Indian suppliers. This direction is not merely about substitution—it is about trust.

Global customers today prioritize reliability, compliance, and traceability alongside cost. India’s ability to capture a larger share of global value chains will depend on strengthening these attributes.

The opportunity is clear:  Move from being a low-cost supplier to a preferred, trusted partner in global chemistry.

Consolidation: The Emergence of Scale Players

India’s chemical sector has traditionally been fragmented, with a long tail of small and mid-sized companies. However, the next decade is likely to witness significant consolidation.

The drivers are evident: rising compliance and environmental costs, increased capital standards and need to digital and methodology investments. As a result, scale will have become a key competitive advantage. Consolidation—through domestic mergers, acquisitions, and strategic partnerships—will likely give rise to a new generation of globally competitive Indian chemical companies. Fragmentation will give way to focus, scale, and specialization.

Digital and AI: Redefining Competitiveness

Perhaps the most transformative shift underway is digitalization. The integration of artificial intelligence and sector 4.0 technologies is reshaping how chemical vegetation operate: AI-driven analytics are improving yields and reducing discarded materials, predictive maintenance is minimizing downtime, real-time data is enabling faster, better decisions and supply chain analytics are enhancing resilience.

These technologies are enabling a transition from reactive operations to predictive and adaptive systems. However, adoption remains uneven. While larger organizations are investing in connected, data-driven systems, many mid-sized players continue to rely on legacy processes, risking competitiveness in a world where digital traceability is becoming essential. The future chemical enterprise will be defined by intelligence as much as infrastructure.

Sustainability and security: From Obligation to Advantage

Sustainability is no longer a peripheral attention—it is central to the sector’s future.

Global regulations, including carbon border taxes and stringent compliance frameworks, are reshaping market access. In response, India is seeing increased focus on: environmentally friendly and bio-based chemicals, energy efficiency and releases reduction and circular economy and discarded materials minimization

Government initiatives such as Rs.20,000 crore allocation to carbon capture, utilization and storage signal strong policy direction.  Parallelly, security has have become non-negotiable. As scale increases, so does risk. The ability to combine process security, digital monitoring, and strong governance frameworks will define sector credibility. Sustainability and security are no longer costs—they are sources of competitive differentiation.

Talent and Skills: The people Challenge

Amid all the technological and structural shifts, one challenge stands out—talent. India faces an estimated 30 per cent shortfall in skilled professionals in cutting-edge areas such as environmentally friendly chemistry and process security. The sector’s future demands a new kind of workforce: Chemists who understand digital tools, Engineers who can work with AI systems and Professionals who integrate sustainability into design and operations

Bridging this gap will require sustained investment in education, sector-academia collaboration, and continuous reskilling. Ultimately, the competitiveness of the sector will be determined as much by its people as by its vegetation.

Infrastructure and Chemical Parks: Enabling the Next Phase

Recognizing the importance of infrastructure, India is accelerating investments in chemical clusters and parks.  The announcement of dedicated Chemical Parks with integrated, plug-and-play facilities marks an crucial measure toward creating globally competitive ecosystems. These clusters—supported by shared utilities, common environmental infrastructure, and logistics connectivity—can significantly minimize costs and enhance efficiency.

However, further progress is needed in areas such as: regulatory simplification, faster environmental approvals and logistics and port infrastructure. Infrastructure will be the backbone of India’s aspiration to have become a global chemical manufacturing hub.

Innovation and R&D: The Missing Multiplier

Despite its scale, India’s chemical sector still underinvests in innovation—spending about 1–1.2% of revenues on R&D compared to higher global benchmarks. This gap limits the country’s ability to move into high-value segments such as electronic chemicals, cutting-edge materials, and specialty formulations.  rising R&D intensity, fostering innovation ecosystems, and strengthening collaboration between sector and academia will be critical.  The future of the sector will not be decided at scale alone—however in labs, design centers, and innovation hubs.

A Defining Decade Ahead

The Indian chemical sector is poised to significant development—however greater importantly, to transformation.  It stands at the intersection of multiple shifts: economic expansion, global supply chain realignment, digital disruption and sustainability and regulatory changes. Navigating this complexity will require bold decisions and sustained investment.

Closing Reflection: The Invisible Engine of Tomorrow

In the years ahead, much of India’s economic progress will be measured in visible milestones—new factories, infrastructure, data centers, and energy systems.  however beneath that visible progress will lie an invisible engine—the molecules, materials, and innovations created by the chemical sector.

If India succeeds in transforming its chemical sector—from scale to innovation, from cost to value, from compliance to leadership—it will not just support manufacturing development; it will shape it.  Because in the final analysis, nations do not rise on infrastructure alone.  They rise on the strength of the science and industries that power them. And chemistry, quietly yet decisively, will fuel the future of sector.