World MSME Day: Chemical industry seeks policy support to boost competitiveness amid global trade disruptions

As India marks World MSME Day, leaders from the country's chemical industry have called for a policy shift towards improving competitiveness, saying manufacturers need stronger supply chain resilience, easier access to critical raw materials, and greater policy support to navigate an increasingly fragmented global trading environment.

India’s chemical industry, valued at around $250 billion in 2024, is among the country’s largest manufacturing sectors, contributing about 7% to the gross domestic product (GDP). The industry, which spans bulk chemicals, specialty chemicals, petrochemicals, agrochemicals, polymers, and fertilisers, is increasingly facing headwinds from geopolitical tensions, higher logistics costs, evolving trade barriers, and dependence on imported feedstock.

The sector, which is the sixth largest globally and the third largest in Asia, manufactures more than 80,000 commercial products. It supplies critical inputs to industries ranging from pharmaceuticals and agriculture to automobiles, textiles, construction and consumer goods.


Siddharth Gupta, Co-founder of Atomgrid, says the ongoing crisis around the Strait of Hormuz has disrupted supply chains and increased cost pressures across the specialty chemicals industry. “Prices of key feedstocks and raw materials imported from China have increased, leading to higher production costs. Despite the ceasefire announcement, buyers are largely in a wait-and-watch mode before placing fresh orders, resulting in a slowdown in demand, particularly in the agrochemicals segment,” he says.

He further highlights that disruptions in LNG and LPG imports through the Strait of Hormuz have prompted the government to prioritise gas supplies for households, leaving manufacturing clusters, particularly in Gujarat, facing supply cuts and slower production. “Export freight rates have increased for the speciality chemicals sector, making Indian products less competitive in overseas markets,” Gupta says.

Longer shipping routes, port congestion, and freight rerouting, he says, have stretched working capital cycles, increasing financing requirements for exporters and putting additional pressure on cash flows. “Removal of import duties on key raw materials sourced from China until the conflict subsides will help ease cost pressures on manufacturers,” Gupta says.

He calls for freight subsidies for speciality chemical exporters, priority allocation of industrial gas to export-oriented manufacturing units, and larger production-linked incentive (PLI) schemes to encourage domestic manufacturing of key raw materials currently sourced from overseas.

“India needs large PLI schemes for the speciality chemicals sector to develop and manufacture key raw materials for which we remain heavily dependent on imports,” he says, adding that reducing dependence on imported feedstock through stronger domestic manufacturing would improve supply chain resilience while insulating the sector from recurring geopolitical disruptions.

Sankar Chakraborti, MD and CEO of Acuité Ratings and Research, which tracks trends across the Indian chemical sector, says the chemical sector is simultaneously facing trade barriers, pricing pressure from Chinese manufacturers, import dependence, and technology gaps. “The US tariffs on Indian goods, including chemicals, have created fresh headwinds for exporters and affected India's efforts to position itself as an alternative manufacturing destination to China,” Chakraborti says.

He says export-oriented chemical companies could see pressure on revenues and margins if tariff uncertainties persist, adding that India should accelerate free trade agreement (FTA) negotiations with key markets while encouraging companies to establish warehousing, distribution networks, and application laboratories closer to overseas customers.

According to Chakraborti, Indian chemical companies need to reduce overdependence on the US market also by expanding exports to Southeast Asia, Africa, and the Middle East. In his view, another major challenge plaguing chemical manufacturers in the country is the continued overcapacity of Chinese manufacturers, which has kept global prices under pressure. State-supported Chinese companies continue operating even at losses, distorting global supply-demand dynamics and limiting any meaningful pricing recovery for Indian manufacturers, he adds.

He further points out that higher crude oil prices directly inflate the cost of key inputs, such as naphtha, benzene, propylene, and ethylene, squeezing margins across the value chain.

“Dedicated chemical parks, stronger backward integration, and diversification of sourcing beyond China and the Gulf will be critical to improving the sector's long-term competitiveness,” he says, calling for faster implementation of dedicated chemical parks with plug-and-play infrastructure, stronger anti-dumping enforcement, and incentives for upstream petrochemical manufacturing.