Syllabus: Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth.  

Context: 

NITI Aayog released its report "Chemical Industry: Powering India’s Participation in Global Value Chains". 

More on the News

• The report analyses India’s chemical sector, outlining challenges, opportunities, and a roadmap to enhance its global competitiveness.
• India’s 3.5% share in global chemical value chains and a USD 31 billion trade deficit in 2023 reflect its heavy reliance on imported feedstock and specialty chemicals.
• Targeted reforms encompassing a comprehensive range of fiscal and non-fiscal interventions will enable India to have a USD 1 trillion chemical sector and achieve a 12% GVC share by 2040, thus becoming a global chemical powerhouse.

Challenges Facing India's Chemical Sector

• Low Investment: India’s low investment in R&D, with only 0.7% of investment against the global average of 2.3%, hampers indigenous innovation in high-value chemicals. 
• Regulatory challenges: Regulatory delays, especially in environmental clearances, further stifle industrial agility. 
• Lack of skilled professionals: The sector is hampered by a 30% shortfall in skilled professionals, particularly in emerging areas such as green chemistry, nanotechnology, and process safety.
• Infrastructure Gaps: Chemical hubs in India often lack key infrastructure like pipelines, CETPs, and waste systems, leading to higher costs and reduced investor interest.
• Outdated Industrial Clusters: Many chemical clusters in India are outdated, lacking modern safety systems and technologies, which reduces competitiveness and sustainability.
• High Logistics Costs: Fragmented supply chains and weak transport links drive up logistics costs, making India’s chemical production less price-competitive globally.

Initiatives to tackle challenges 

• Establish world-class Chemical Hubs in India through revamping existing clusters and developing new ones: An empowered central committee, supported by a dedicated Chemical Fund for shared infrastructure and VGF, along with administrative bodies at the hub level for local management, will ensure coordinated development of chemical hubs.
• Develop existing port infrastructure: A Chemical Committee will address port infrastructure gaps, alongside the development of 8 high-potential chemical clusters.
• Introduce an Opex subsidy scheme for chemicals: Offer incentives on incremental chemical production based on import reliance, export potential, and market criticality, with benefits linked to sales over a fixed period.
• Develop and access technologies to enhance self-sufficiency and foster innovation: Boost R&D through industry-academia collaboration via a dedicated agency, and promote tech access through partnerships with MNCs.
• Fast-track environmental clearance with transparency and accountability: Fast-track and simplify environmental clearances by empowering EAC and setting up a DPIIT audit committee to ensure timely, transparent approvals.
• Securing FTAs to support Industry growth: Negotiate FTAs with chemical-specific provisions like tariff quotas, while boosting exporter awareness and simplifying processes for better FTA use.
• Talent and skill upgradation in the chemical industry: Expand ITIs and training institutes, upgrade faculty, and strengthen industry-academia partnerships to deliver industry-relevant courses and meet the growing demand for skilled labor.

Vision 2030 

• The vision for 2030 is for India to become a global chemical manufacturing powerhouse with a 5%-6% share of the global chemical value chain. 
• The sector aims to double its current production levels and reduce the trade deficit significantly from USD 31 billion in 2023 to reach a net-zero trade balance in Chemicals. 
• The initiative will generate an additional export of USD 35-40 billion, generating around 7 lakh skilled jobs.