Introduction
The chemicals industry occupies a central place in India’s industrial and economic landscape. With a portfolio spanning bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers, fertilisers and fine chemicals, the sector encompasses over 80,000 commercial products.
In 2024, the industry’s total value was estimated at US$ 250 billion. Projections suggest that under favourable conditions of demand growth, investment and policy support, the sector could reach US$ 300 billion by 2028 — and possibly US$ 1 trillion by 2040.
These numbers reflect not only the scale of the industry but also the magnitude of opportunity. Growth is fuelled by expanding domestic demand, rising consumption in downstream industries (such as pharmaceuticals, agriculture, automotive, consumer goods), and increasing export potential.
Yet this promise exists alongside a complex and evolving risk landscape. Rapid growth, modernisation, globalisation and regulatory pressures present challenges. Without robust risk management strategies and resilient governance, expansion can be fragile.
This article examines the major risks confronting India’s chemicals sector and outlines ten critical imperatives for resilience — strategic priorities that chemical firms, policy-makers and stakeholders must embrace to secure long-term sustainable growth.
Risks faced by India’s Chemicals Industry
Beyond cyclical fluctuations in demand and global commodity pricing, India’s chemical industry must navigate a mosaic of risks. These include environmental and climate-related risks, supply-chain fragility, talent gaps, financial liability risk, regulatory risk and compliance pressures, cyber and operational vulnerabilities, and reputational damage associated with safety and environmental hazards.
In the context of global pressure to adopt sustainable practices, increased regulatory scrutiny, rising cost of raw materials and energy, and the growing complexity of chemical value chains, firms that ignore these chemical industry risks may face operational disruption, legal penalties, eroded stakeholder trust, financial stress, and loss of market competitiveness.
1. Sustainability Risk
Chemical manufacturing is resource-intensive. It consumes large volumes of energy, water, raw materials and often generates emissions, effluents, waste and byproducts. On a global scale, the chemicals sector is a significant contributor to industrial greenhouse gas emissions and environmental pollution. For India, where ecological sensitivity, water scarcity, pollution constraints, and biodiversity concerns intersect with high growth, the risk is acute.
As demand scales up and production expands, failure to embed sustainable practices could deplete natural capital, degrade ecosystems, contaminate water bodies, and erode societal and regulatory acceptance. In addition, global buyers — particularly in developed markets — increasingly insist on environmentally responsible sourcing and compliance with ESG (environment, social, governance) standards.
Smaller and medium-sized chemical manufacturers often lack the financial or technical capacity to invest in effluent treatment, waste recycling, zero-liquid-discharge (ZLD) systems, green hydrogen, or solvent recovery units. As a result, adoption of sustainable practices remains uneven and fragmented, giving rise to ESG risk.
2. Digitalisation Risk
Globally, manufacturing — including chemical manufacturing — is undergoing a transformation driven by digitalisation: process automation, data analytics, predictive maintenance, real-time monitoring, supply-chain transparency, and smart manufacturing. Firms that resist or delay process automation risk falling behind in efficiency, cost-competitiveness, quality control, regulatory compliance and adaptability.
In the Indian context, many chemical facilities still operate legacy processes. Without digital tools, they may struggle with suboptimal resource usage, quality inconsistency, lower yields, higher downtime, inefficient supply-chain coordination, and lack of traceability. As global supply chains demand compliance, traceability and sustainability reporting, lack of digital maturity could become a competitive handicap.
As emphasised by industry analysts, success in chemicals depends increasingly on advanced technology, strong research capability, backward and forward integration, and domestic capacity to reduce import dependence.
3. Cyber Risk
Digitalisation brings not only opportunity but also exposure to digital risks. As chemical companies increasingly rely on enterprise resource planning (ERP) systems, digital supply-chain management, real-time process monitoring, remote operations and data-driven workflows, cyber threats emerge as a critical risk.
A cyber attack — whether data breach, ransomware, system intrusion or shutdown — could interrupt production, compromise proprietary formulations, jeopardise safety systems, disrupt supply chains, lead to compliance failures or regulatory penalties, and damage brand reputation. Given the hazardous nature of chemicals, a cyber-induced malfunction in storage, process control or safety systems could have catastrophic consequences.
This risk grows especially for firms that engage in export, manage complex global supply-chains, hold proprietary processes or intellectual property, or operate multiple sites with integrated digital infrastructure.
4. High energy costs risk
Chemical manufacturing is energy intensive. Many processes rely on energy sources such as coal, natural gas, fuel oil, power generated from fossil fuels. In a global environment of fluctuating crude oil prices, uncertain natural-gas supply, and volatility in energy markets, input costs can swing unpredictably.
For Indian chemical firms — especially those importing feedstock or energy, or depending on thermal energy — such volatility can sharply erode margins. In cases where energy contributes a substantial portion of variable cost, unexpected spikes may threaten profitability, delay expansion plans, or make manufacturing economically unviable. The challenge intensifies when global geopolitical events, supply shocks or demand surges push fuel prices upward.
5. Supply Chain Risk
India’s chemical industry remains significantly dependent on imports for certain critical feedstocks, intermediates or specialised raw materials. Simultaneously, domestic logistics infrastructure faces limitations: port capacity constraints, congested transport routes, limited handling capacity for hazardous goods, seasonal disruptions, inadequate cold-chain or chemical-safe logistics infrastructure, and sometimes regulatory or bureaucratic delays.
Global supply-chain disruptions — as seen during pandemics, geopolitical tensions or global shipping disruptions — can magnify these vulnerabilities. Delays in raw-material arrival, spike in freight rates, increase in lead times, or breakdown in logistic chains can interrupt production, cause inventory constraints, impact deliveries to customers, and impair working-capital management.
For Indian firms aiming to scale, export or integrate into global value chains, such infrastructure risks and supply-chain fragility could become substantial bottlenecks.
6. Talent Risk
The evolution of the chemical industry toward specialty chemicals, sustainable processes, digital manufacturing, quality control, environmental compliance, and safety demands more than traditional process knowledge. It requires skilled professionals trained in modern process chemistry, environmental management, safety engineering, data-driven operations, regulatory compliance and innovation.
In India, the sector suffers from a sizable gap in such skill sets. Estimates suggest a 30 percent shortage of professionals equipped for green chemistry, safety standards, nanotechnology, sustainable process design and regulatory compliance.
Moreover, research and development (R&D) investment by Indian chemical firms remains modest — around 0.7 percent of industry revenue — which is significantly below global norms (often around 2–3 percent). This undermines their capacity to innovate, to develop high-value, sustainable or niche products, and to stay competitive globally.
Without strategies for attracting, retaining and upskilling talent, firms risk stagnation, inability to meet regulatory or sustainability demands, quality lapses, safety failures and loss of competitive advantage.
7. Debt and Pension Liability Risk
Large chemical firms — especially those pursuing rapid capacity expansion, backward integration, adoption of new technologies or overseas operations — often rely on significant borrowing. Legacy obligations such as defined-benefit pension liabilities for overseas subsidiaries or older workforce can add further long-term financial burden.
Without disciplined financial risk management, heavy debt servicing combined with pension liabilities may reduce free cash flow, constrain reinvestment in modernization or sustainability, constrain ability to absorb shocks, or compel companies to defer critical investments in safety, compliance or innovation.
This risk is heightened in periods of economic downturn, fluctuations in interest rates, or weakening demand.
8. Regulatory and Policy Risk
Chemical manufacturing is among the most regulated sectors globally because of its safety, environmental, health, and public-welfare implications. In India, regulation spans environmental clearances, hazardous-chemical storage and transport norms, waste treatment, emission standards, occupational health and safety, product standards, import-export licensing, and more. Compliance is rigorous and sometimes complex.
Recent regulatory updates such as the revised Chemical Management and Safety Rules, 2023 strengthen oversight on import, manufacture, storage, handling and transportation of hazardous chemicals.
Given evolving global norms and international pressure on sustainability and safety, regulatory changes — often abrupt or stringent — may require substantial compliance investments, retrofits, process redesigns, documentation, audits and disclosures. For smaller or medium enterprises, complying with such demands may be particularly burdensome.
Non-compliance or delay may result in heavy penalties, forced shutdowns, reputational damage or loss of export market access.
9. Reputational Risk and Safety Risk
Chemical manufacturing inherently involves hazardous substances. Accidents — chemical leaks, fires, explosions, environmental contamination or unsafe waste disposal — can result in grave consequences: loss of human life, environmental damage, contamination of water or soil, health risks to local communities, and long-term reputational harm.
Moreover, product safety failures — e.g. impurities, substandard chemical products — may harm end-users or downstream industries, trigger liability claims, regulatory action, or export bans.
In a world where public opinion, environmental activism, consumer awareness, and media scrutiny are growing, a single safety failure can have a disproportionate negative impact on brand, license to operate, community relations and long-term viability.
The pandemic (COVID-19) also highlighted the need for robust workplace health protocols, employee welfare measures, supply-chain continuity and crisis-management readiness — all of which remain part of the safety and reputational risk management framework.
Ten Imperatives for Building Resilience in India’s Chemical Industry
The following risk mitigation solutions can help build resilience in India’s chemical industry :
1.Embedding Sustainability and Circular Economy Thinking
Sustainability has become central to the long term competitiveness of the chemicals industry. Firms need to accelerate adoption of green chemistry, cleaner production, waste minimisation, resource recovery, solvent reuse, efficient water management, advanced effluent treatment and wherever possible renewable or bio based feedstocks. These practices preserve natural capital, reduce dependency on fossil inputs and strengthen environmental stewardship.
To move beyond isolated initiatives, companies should create a transparent sustainability roadmap grounded in science based targets for emissions, resource use and waste reduction. These targets must be embedded in business strategy and capital allocation decisions. Boards should review progress frequently and sustainability metrics must form part of corporate disclosures.
Large companies often have the financial strength to invest in advanced sustainability infrastructure, yet small and medium enterprises face cost constraints. Cluster level investments, common effluent treatment plants, shared utilities, public private partnerships and government incentives are essential to bridge this gap. Access to green finance, technology transfer and facilitative regulation can accelerate industry wide adoption.
Circular economy strategies such as chemical recycling, waste to value processes, bio based feedstocks and by product utilisation can reduce raw material dependence and improve cost efficiency. As global buyers increasingly prefer environmentally responsible suppliers, companies that adopt circular models gain a significant competitive advantage.
2. Institutionalising Digital Transformation and Process Innovation
Digital capabilities must become a core component of growth strategy. An organisation wide digital roadmap aligned with business priorities encourages consistency and smooth integration. Enterprise reference architecture can strengthen interoperability across production sites and business functions.
A structured digital value assessment helps firms identify use cases that enhance yield, reduce downtime, improve safety, enable predictive maintenance, support procurement planning and provide regulatory traceability. Industrial internet of things, data analytics, cloud platforms, automated workflows, real time monitoring systems and advanced supply chain tools have proven to deliver substantial efficiency gains.
Digital transformation can succeed only when employees understand and adopt new systems. Continuous training builds digital literacy and prepares staff for roles that increasingly rely on data based decision making. Monthly and quarterly reviews help track adoption levels and ensure accountability. Integrating digital efforts with sustainability and safety objectives creates transparency, traceability and long term operational excellence.
3. Building Cyber Resilience and Securing Digital Infrastructure
As digitisation expands, cyber security becomes critical for risk governance. Chemical companies should work with managed security service providers who offer continuous threat monitoring and rapid incident response. Mandatory vulnerability assessments and penetration testing help identify digitalisation risks and weaknesses before they are exploited.
Robust access controls, including privileged access management and multi factor authentication, restrict unauthorized entry. Regular review of firewall rules and secure remote access policies is necessary, especially for companies that operate across multiple sites or countries. Standardised security protocols and centralised network management strengthen consistency across locations.
Cyber risk must be part of the enterprise risk management framework. Boards and risk committees should receive regular updates. Cyber insurance can provide financial protection for residual risks, particularly where intellectual property or automated operations are exposed. A combination of technical controls, governance, training and insurance significantly enhances organisational resilience against cyber security risk .
4. Formulating a Proactive Energy Strategy to Manage Cost Volatility
Energy price volatility is a recurring challenge for chemical manufacturers. To mitigate this risk, firms should diversify sourcing regions and explore alternative fuels including biomass based inputs, waste derived fuels and renewable power. Investments in energy efficiency, waste heat recovery and process optimisation reduce overall energy intensity.
Forward procurement strategies, long term supply contracts and commodity hedging can stabilize costs and protect margins. Energy efficiency efforts often align with sustainability commitments, creating benefits that extend beyond cost savings. Proactive energy planning ultimately strengthens financial performance and reduces vulnerability to global market shifts.
5. Strengthening Supply Chain Resilience
Reducing dependency on critical imports strengthens resilience. Firms may pursue backward integration by developing domestic sources, establishing upstream production or partnering with local suppliers where feasible. When imports remain essential, diversification of suppliers across multiple regions and long term supply contracts can reduce concentration risk.
Predictable logistics can be achieved through long term contracts of affreightment. Buffer inventory for essential inputs and improved demand forecasting help prevent disruptions. Digital platforms that provide supply chain risk and visibility alerts improve preparedness. Cluster level infrastructure, safer warehousing and regulatory support for transport of hazardous materials further reinforce supply chain strength.
6. Investing in Talent and Building Human Capital for consistent operational excellence
Human capital underpins compliance, innovation, sustainability and safety. Structured career development plans, training programs, job rotations and mentorship opportunities help retain skilled employees and strengthen organisational resilience. Training should cover green chemistry, environmental management, occupational safety, digital tools and regulatory requirements.
Partnerships with universities, research labs and vocational institutions help bridge skill gaps and support talent supply. Identifying high potential employees and preparing them for leadership roles ensures continuity and institutional memory. Strong human capital supports innovation, research capability and consistent operational excellence.
7. Ensuring Financial Discipline and Managing Long Term Liabilities
Chemical manufacturing requires significant capital investment. Firms must undertake careful evaluation of expansion projects, considering long term returns, market cycles and cash flow strength. Debt levels should be aligned with the firm’s risk appetite and ability to service obligations even during downturns.
Legacy pension commitments, especially in overseas subsidiaries, must be reviewed. Closing defined benefit schemes to new recruits or limiting future accruals can stabilise long term exposures. Free cash flow should be directed toward essential investments in sustainability, safety, digital capability and talent.
Strong financial discipline enhances resilience and supports strategic agility.
8. Engaging Proactively with the Regulatory and Compliance Ecosystem
The chemical sector operates within a complex regulatory environment. Digital systems that track permits, audits, environmental clearances and safety standards help avoid lapses.
Dialogue with regulators, participation in industry associations and involvement in policy consultations allow firms to anticipate changes and influence policy evolution. This approach builds trust with stakeholders and mitigates the risk of unexpected compliance burdens.
9. Prioritising Safety in Operations
Safety must remain central to operations. Global standards for safety management, asset integrity, preventive maintenance and process safety must guide daily decision making. Regular risk assessments, emergency preparedness drills, safe transport practices, certified storage and strict handling of hazardous materials are essential.
Environmental health responsibilities such as effluent treatment, solvent recovery and emissions control must always remain a priority. Transparent communication and community engagement build social license and strengthen long term trust.
10. Cultivating a Risk Intelligent Culture
Resilience requires institutionalised risk management rather than isolated controls. A structured system such as the IRM’s enterprise risk management framework supports systematic identification, analysis, evaluation, treatment and monitoring of risks. Clear risk appetite, key indicators, contingency planning and board oversight ensure timely and informed decision making. A culture that values transparency, preparedness and accountability positions firms for sustained growth.
Possibilities and Strategic Opportunity for India’s Chemicals Sector
If Indian chemical firms embrace these imperatives and embed robust risk-aware governance, the sector’s long-term potential is enormous. Several developments illustrate the opportunity.
- The shift toward sustainable and specialty chemicals, combined with rising global demand and emphasis on ESG compliance, presents a chance for Indian firms to position themselves as global suppliers of green, compliant, high-quality chemicals. Digital and process efficiencies can raise yields, reduce waste, lower costs and provide flexibility — enabling firms to compete even in commodity segments while improving margins.
- Backward integration and strengthening domestic feedstock supply chains can reduce dependence on imports, stabilize supply, and insulate firms from global feedstock fluctuations or geopolitical dependencies.
- Investment in human capital and talent development can strengthen innovation capacity, compliance culture, safety standards, operational excellence, and long-term organisational resilience.
- Through proactive regulatory engagement and adoption of global best practices in safety and environmental management, Indian firms can secure social license, improve stakeholder trust, and access global markets that value sustainability and compliance.
- Embedding risk-intelligent governance enables firms to weather macroeconomic cycles, commodity price shocks, demand fluctuations, regulatory shifts, energy crises, geopolitical events or global supply-chain disruptions.
Taken together, these imperatives can help transform the Indian chemicals sector from a growth-and-scale proposition to a resilient, sustainable, globally competitive industry — one capable of delivering long-term value to investors, stakeholders, communities and the nation.
Conclusion
India’s chemicals industry stands at a critical crossroads, where immense growth opportunities intersect with complex risks. Rising domestic demand, export potential, and favourable policy conditions present a chance to scale rapidly, diversify product portfolios, and emerge as a global supplier of sustainable and high-quality chemicals. Yet this potential is accompanied by multifaceted challenges — environmental pressures, energy volatility, supply-chain fragility, regulatory complexity, talent gaps, and cyber and operational risks. Without a structured, risk management approach, expansion could be vulnerable, leading to operational disruptions, financial strain, compliance issues, and reputational damage.
To secure long-term resilience, firms must integrate sustainability, safety, digital transformation, and robust governance into their core strategy. Embedding green chemistry, circular-economy principles, and energy-efficient processes reduces environmental impact and aligns with global ESG expectations. Digitalisation and advanced supply-chain visibility enhance efficiency, traceability, and responsiveness. Proactive risk management, including cyber resilience and financial discipline, ensures firms can withstand external shocks, protect intellectual property, and maintain stakeholder trust.
By strategically focusing on talent, safety, compliance, sustainability, and technological innovation, firms can convert chemical manufacturing risks into competitive opportunities, fostering resilient growth and cementing India’s position as a leader in the global chemicals industry.
FAQS
1.What are the biggest risks facing India’s chemical industry today?
The biggest risks facing India’s chemical industry today are as follows –
Sustainability Risk
Failure to embed sustainable practices could deplete natural capital, degrade ecosystems, contaminate water bodies, and erode regulatory acceptance.
High energy costs risk
With fluctuating crude oil prices, uncertain natural-gas supply, and volatility in energy markets, input costs can swing unpredictably thereby eroding margins and delaying expansion plans.
Supply-Chain Risk
The logistics infrastructure faces port capacity constraints, congested transport routes, and inadequate cold-chain or chemical-safe logistics infrastructure.
Delays in raw-material arrival, spike in freight rates, or increase in lead times can cause inventory constraints, impact deliveries, and impair working-capital management.
Regulatory Risk
Regulatory changes require compliance investments, process redesigns, audits and disclosures. Non-compliance or delay may result in penalties, shutdowns, reputational damage or loss of export market access.
Reputational Risk and Safety Risk
Chemical leaks, explosions or environmental contamination can result in loss of human life, environmental damage, health risks to communities, and long-term reputational harm.
2. Why is risk management important in the chemical manufacturing industry?
India’s chemicals industry stands at a critical crossroads, where immense growth opportunities intersect with complex risks. Rising domestic demand, export potential, and favourable policy conditions present a chance to scale rapidly, diversify product portfolios, and emerge as a global supplier of sustainable and high-quality chemicals. Yet this potential is accompanied by multifaceted challenges — environmental pressures, energy volatility, supply-chain fragility, regulatory complexity, talent gaps, and cyber and operational risks. Without a structured, risk management approach, expansion could be vulnerable, leading to operational disruptions, financial strain, compliance issues, and reputational damage.
Resilience requires institutionalised risk management rather than isolated controls. A structured system such as the IRM’s enterprise risk management framework supports systematic identification, analysis, evaluation, treatment and monitoring of risks.
By strategically focusing on talent, safety, compliance, sustainability, and technological innovation, firms can convert risks into competitive opportunities, fostering resilient growth and cementing India’s position as a leader in the global chemicals industry.
3. What is regulatory compliance in the chemical industry?
- Chemical manufacturing is among the most regulated sectors globally because of its safety, environmental, health, and public-welfare implications. In India, regulation spans environmental clearances, hazardous-chemical storage and transport norms, waste treatment, emission standards, occupational health and safety, product standards, import-export licensing, and more. Compliance is rigorous and sometimes complex.
- Given evolving global norms and international pressure on sustainability and safety, regulatory changes — often abrupt or stringent — may require substantial compliance investments, retrofits, process redesigns, documentation, audits and disclosures.
- Non-compliance or delay may result in heavy penalties, forced shutdowns, reputational damage or loss of export market access.
- Digital systems that track permits, audits, environmental clearances and safety standards help avoid lapses.
- Dialogue with regulators, participation in industry associations and involvement in policy consultations allow firms to anticipate changes and influence policy evolution. This approach builds trust with stakeholders and mitigates the risk of unexpected compliance burdens.
