Chemical regulations and the economy in India

Chemical manufacturing in India has seen extraordinary growth recently. It’s currently the sixth largest chemical producer in the world and the third largest in Asia. India produces many types of chemicals catering to many industry sectors supporting the country’s economy.  

In this article, Expert Services Manager, Sunita Paudyal, draws attention to the current state of chemical regulations in India, highlighting the key regulations impacting economic growth, consequences of current gaps in the industry, and the global impact of India’s chemical policies.

Chemical regulatory landscape in India

According to Invest India, the chemical industry in India is around USD 220 billion, with specialty chemicals accounting for 18%, and is expected to grow to USD 300 Billion by 2030. India is the sixth largest producer of chemicals globally and the third largest in Asia, contributing about 7% to India’s GDP. The chemical industry covers over 80,000 commercial products, classified into:  

• Bulk 
• Specialty 
• Agrochemicals 
• Petrochemicals 
• Polymers 
• Fertilizers 

The government has shown great support and implemented initiatives and plans to make India a global chemical leader. Interestingly, on the regulatory front, India lacks chemical regulations that provide health and safety in the workplace. India has been struggling for a decade to finalize REACH-like regulations. However, India continues to focus on developing specific chemical standards to provide quality and safe chemical products to reduce environmental and public impact at the root level. 

The application and bureaucratic processes for these regulations are lengthy, rigorous, and complex, and there’s currently no provision for mutual agreement with international partners. It’s interesting to see how these regulations and India’s current approach to becoming the market leader will impact global chemical manufacturing companies.

Chemical policies aimed at economic growth

Economic growth, a large market size, and industry expansion, among other factors, have paved the way for an increased demand for chemical manufacturing in India. In addition, new mandates requiring the use of locally sourced products and resources have supercharged the manufacturing sector. The chemical industry plays a vital role in developing other industries as it provides intermediates and finished products to almost all industry sectors. 

India is the third largest consumer of polymers, the fourth largest producer of agrochemicals, and the sixth largest seller of chemicals worldwide. In view of this large market size, the Indian government has taken several initiatives to establish India as a global chemical hub. 

The Public Procurement (Preference to Make in India) Order 

The Public Procurement (Preference to Make in India) Order, 2017, and its subsequent amendments, encourage “Make in India” and promote the production of goods and services to boost employment and economic growth at a rapid pace.  

In response to the Order, the Department of Chemicals and Petrochemicals, via different orders, has been assessing the domestic chemical supply and manufacturing capacity, local competition, and the minimum content percentage of those chemicals that can be manufactured in India. Based on these assessments, the department has mandated minimum local content levels for several chemicals. For example, the minimum local content in formaldehyde and ethyl acetate in 2023 – 2025 must be at least 80%. 

Petroleum, Chemical, and Petrochemical Investment Regions Policy 

To further support this initiative and attract domestic and foreign investments, India has formulated the Petroleum, Chemical, and Petrochemical Investment Regions (PCPIRs) policy. The PCPIRs provide a business-friendly environment by providing transparency and high-class infrastructure, among other incentives, to facilitate smooth setup processes for businesses in the chemical sector.

Bureau of Indian Standards Act 

The Bureau of Indian Standards (BIS) Act 2016 is the main regulation ensuring product safety in India. It designates the BIS as the National Standards Body of India that harmoniously develops activities of standardization, conformity assessment, and quality assurance of goods, articles, processes, systems, and services. 

The technical committees established under the BIS create standards that align with global trends and technological advancements, and a well-structured network of laboratories, committees, and experts regularly update these standards to meet current requirements and challenges. 

Indian Standards are voluntary in nature, but binding if referred to in legislation or made mandatory by specific government orders. The BIS Act empowers the Central Government to direct the compulsory use of standard marks on certain products that it considers necessary in: 

• the public interest 
• the protection of human, animal, or plant health 
• the safety of the environment 
• the prevention of unfair trade practices 
• national security 

The notification is made through Quality Control Orders (QCOs) and published in the official gazette.  

According to the Department of Chemical and Petrochemical Annual Report 2022-2023, the department has issued QCOs for 72 chemicals, 39 of which are in effect, and the effective dates of 33 others have been postponed.  

Under the QCOs, manufacturers and importers of chemicals for which QCOs are issued must ensure that the chemicals comply with the technical and safety requirements specified in the Indian Standards and bear a standard mark issued under license by the Bureau of Indian Standards. The obligations also apply to imported chemicals. Companies that export any of these chemicals into India must apply for a license from the foreign manufacturers’ certification scheme. 

Companies that contravene the order, including responsible officers such as directors and managers, can be imprisoned for up to two years or fined.

Gaps in India’s chemicals management landscape

India is marching towards becoming a chemical manufacturing hub. However, there’s a significant lack of regulations that protect the environment and ensure the health and safety of workers in this sector. Most existing regulations in India focus on protecting workers in factories and construction sites.  

Regulations that provide considerations for chemical exposure, labeling, packaging, and, most importantly, risk analysis and assessment, and measures to prevent and reduce these risks, are lacking. It doesn’t appear that India has any plans to come up with such regulations that eliminate the risks associated with the chemical sector.  

Further, India hasn’t yet finalized its REACH-like regulations a decade after the first draft was issued. The Fifth and “final draft” was issued in 2020, and there has been no update since. 
 

Consequences of these chemicals management gaps 

Consequences of India’s insufficient safety regulations and lack of enforcement is reflected in recent accidents.  

For example, earlier in 2024, six workers died, and 22 others fell ill after inhaling toxic fumes from a hazardous waste container that wasn’t properly managed and dumped illegally in a chemical industry hub in Gujarat.  

India is currently focusing on minimizing chemical hazards at the source by prescribing QCOs, which require companies that manufacture or import such chemicals to comply with Indian standards. These regulations are primarily intended to protect human and animal health, the environment, and consumers by preventing the manufacture, import, and sale of low-quality or potentially dangerous chemicals. However, these regulations cannot minimize the risks and hazards posed by chemical manufacturing operations.  

How do these regulations impact global chemical companies?

The large market size and the rapidly growing economy in India have accelerated the demand for chemicals, and targeted support and guidance from the government have paved the way for India to position its chemical sector as a global leader. Due to the availability of cheap labor, low manufacturing costs, growing local demand, availability of skilled labor, readily available raw materials, loose regulations, and easy regulations and procedures for exporting, India provides great opportunities for companies to establish their chemical operations in the country.   

India is the 14th largest global chemical exporter, making up about 2.5% of global chemical sales. India’s chemical exports are expected to grow 9.5% — 10% annually, accounting for USD140 — 145 billion in 2024. Foreign companies manufacturing chemicals in India for export will also continue to see great growth in exports beyond 2024.  

Although India aims to ease doing business through initiatives such as PCPIRs, its procedures and processes are often lengthy and not very transparent and straightforward. Loose regulations around operational, environmental, and health safety could potentially tarnish the global reputations of companies manufacturing in India as well as set their sustainability goals back. 

In view of the large revenues that the chemical sector brings into the economy, the government has taken initiatives to increase chemical production by mandating minimum local content levels. These initiatives boost domestic manufacturing growth by forcing international companies vying to sell their products into the Indian economy to set up manufacturing operations in India.  

India has been issuing its own national standards and mandating compliance with these standards instead of international standards for companies looking to serve the Indian market. Global companies must there comply with these local standards as well as international standards to be able to serve the global market. This is exasperated by the lack of information on how internationally accredited labs can gain recognition from the BIS. These developments have caused concerns for some countries as well as the World Trade Organization (WTO). 

The future of India’s chemical management industry

India’s engagement with WTO members and international stakeholders will play a crucial role in how well the international business community will embrace India’s rise as a chemical manufacturing hub. Transparency and clear communication regarding the rationale behind QCOs as well as aligning Indian standards with relevant international norms can foster trust and alleviate concerns about protectionism. 

India’s plan to protect domestic consumers and boost local manufacturing are genuine goals. But navigating the delicate balance between international trade and domestic prosperity will require a more open approach. 

However, several challenges remain in terms of safety and sustainability. Foreign chemical companies, either manufacturing in India or catering to Indian customers via export, are equally impacted by regulations like QCOs and having a minimum local content level while manufacturing their products in India. Global companies should consider the most viable and suitable option.  

Companies looking to serve the Indian market might be well served by supporting, or even joining, the WTO in discussions with India to streamline or produce chemicals and standardize the regulatory framework to be consistent globally. Companies must also get acquainted with upcoming regulatory developments and be prepared to comply with them, as the preparations are usually elaborate and time-consuming.