From export benefits to capital subsidies, the $178-billion chemical industry pins hope on Budget 2023

In recent years, the chemical industry has grown multi-fold, with India standing tall as the sixth-largest chemical-producing country globally. The chemical and petrochemicals market in India is touching $178 billion. The anticipation of favourable legislative policies in the upcoming Budget will potentially catalyse the growth further.

PLI scheme for chemicals
India’s petrochemical demand has grown rapidly, and this trend will likely continue for the next two decades. Demand for commodity polymers, fibre intermediates, elastomers, and speciality petrochemicals are predicted to rise across the board. The government is developing a Production Linked Incentive (PLI) programme for the chemical sector to encourage domestic manufacturing. This year, we are expecting a positive momentum towards this PLI scheme.

Export benefits for specialty chemicals
India is among the world’s top exporters of chemical products, with the export of chemicals and petroleum products standing at $ 8.24 billion as of August 2022. The speciality chemicals segment is growing fast in the country and is expected to reach $ 65-70 billion by 2025. It will primarily be export-oriented and play a significant role in the overall macroeconomics. As of now, India exports to more than 175 countries, and export benefits for speciality chemicals can further propel the industry’s growth momentum.
Tax advantages in the DSIR scheme
The Department of Scientific and Industrial Research (DSIR) provided manufacturing businesses tax exemptions of up to 150% under Section 35 (2AB) of the Income Tax Act of 1961 for R&D in their field until March 31, 2020. After this, the tax exemption was reduced to 100% of R&D expenses. All significant manufacturing enterprises involved in R&D were hit hard. This year’s budget should improve DSIR tax benefits. It will empower firms to spend more on R&D, enabling new technologies and products.

Measures to offer capital subsidies

Indian chemical producers are well positioned to emerge as a legitimate alternative and, in some circumstances, the principal supplier to multinational firms. This sector is highly capital intensive with a long payback period. In order to encourage large capacity expansions, capital subsidies of about 10-20% for investment projects beyond Rs 100 crore could further drive the industry’s growth.Final note
In the past months, the shift of global supply from China has increased outsourcing opportunities and domestic demand. It has given India more expansion opportunities. By 2025, the Indian chemical industry is expected to reach $300 billion, and focused assistance in export benefits, tax advantages, and capital subsidies will further add thrust to the ongoing growth.

The writer is Chairman & MD, Inventys Research Company.

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