The core tension: the steadiest IIP performer, but growth has cooled and value-add is thinning
Chemicals is the steadiest structural performer among the ten sectors covered in this series: 4th of 10 on IIP level (153.9 in 2025-26, up from a 2012-13 base of 105.6), 4th on full-period CAGR (2.94%), and the least volatile sector of all ten on the standard deviation of year-on-year growth. It recovered fully from its COVID-year dip within a year and has set new index highs every year since, a sharp contrast with Textiles, which never recovered its pre-COVID peak. Financial performance backs this up: PAT margin rose from 3.2% (2014-15) to 5.7% (2024-25), ROE from 9.1% to 11.2%, and Free Cash Flow more than doubled while staying positive throughout.
Two softer signals sit underneath that headline strength. First, the sector's most recent year of growth was close to flat (+0.55% in 2025-26), ranking only 8th of 10 sectors on latest-year growth, a marked step down from the CAGR that got it here. Second, and more structurally, the value-added share of Gross Value of Output fell over the decade, from 18.0% (2014-15) to 15.7% (2023-24), even as GVO itself more than doubled. Output is growing faster than the value captured from it, the mirror image of the pattern seen in Textiles, where GVO growth was more modest but value-added share rose. The sector's firm structure has stayed inside the Competitive HHI band throughout, oscillating between 703 and 878 with no clear directional trend; top-3 firm share stood at 42.4% in 2024-25, dominated by the refining majors (Indian Oil, Reliance, Bharat Petroleum, Hindustan Petroleum, Nayara Energy).
Trade: a surplus that has nearly vanished
Chemicals ran a trade surplus of just ₹15,934 crore in FY24-25, now equivalent to little more than 1% of export value. Exports fell 9.8% year-on-year while imports rose 7.1%, and import dependency stands at 49.7%, high but not the highest in this series: Metals (76.9%), Electronics (71.6%), Engineering Goods (64.1%), Electrical Equipment (58.4%) and Construction Materials (55.5%) all run higher. A large share of trade on both sides is refined petroleum products (HS 2710/2711 codes: petroleum oils, LNG, LPG), so global crude and gas price movements are doing real work in these numbers alongside domestic manufacturing competitiveness. China is the dominant single import partner (₹2,07,745 crore), while the USA and Netherlands lead on exports. At the firm level, the sector's largest revenue generators, the refining majors, report no meaningful exports in their financials; the firms that actually lead the sector on exports are pharmaceutical manufacturers instead, led by Aurobindo Pharma (₹9,162 crore) and Cipla (₹6,330 crore) by absolute value, with a separate group of smaller, near-fully export-oriented specialty pharma and rubber-goods firms leading on export intensity.
Investment: a very large pipeline, and a PLI scheme that covers only part of the sector
Chemicals carries the largest under-implementation pipeline of any sector in this series, ₹37.54 lakh crore across 2,382 projects, alongside ₹12.70 lakh crore outstanding across 1,101 projects, the second-largest outstanding stock after Metals (₹27.53 lakh crore). New investment remains overwhelmingly private (₹5,79,770 crore of ₹6,90,391 crore total in 2024-25, roughly 84%), with combined government investment around 12% and foreign private under 4%. Dropped-investment cost roughly tripled in a single year, from ₹98,968 crore (2023-24) to ₹2,78,961 crore (2024-25), a much sharper rise than the pattern seen in Textiles, and the count of dropped projects has climbed every year since 2019-20. On policy: the Production Linked Incentive scheme that touches this sector is scoped specifically to Drugs and Pharmaceuticals (₹2,150.5 crore Revised Estimate expenditure in 2024-25, rising to a ₹2,444.9 crore Budget Estimate for 2025-26); there is no PLI scheme for bulk or basic chemicals, petrochemicals, or plastics. Reading PLI as representative of investment policy for Chemicals as a whole would understate the picture; the pipeline is a private-capital story with a narrow, pharma-specific policy layer on top.
Geography: Gujarat's scale is not matched anywhere else
Gujarat accounts for 29.1% of the sector's national GVO, more than double its nearest rival Maharashtra (13.1%), and hosts the largest concentration of chemical clusters of any state (four of the eleven profiled, including Ankleshwar-Panoli, one of the best-documented chemical clusters in the country). Tamil Nadu, Uttar Pradesh and Andhra Pradesh round out the top five, each in the 4.8-5.3% GVO-share range, but Andhra Pradesh stands out on wages per worker (₹3,16,170, the highest of the top five) despite a comparatively small factory count, a pattern consistent with a small number of large pharmaceutical API plants (see JNPC Parawada) rather than a broad manufacturing base. The top-5 states together account for roughly 57% of national output, somewhat less concentrated than Textiles' ~65%, but built around one dominant state rather than a spread.
Clusters: eleven hubs across five states
Eleven Chemicals clusters are profiled across five states, spanning bulk-chemical hubs (Ankleshwar-Panoli, Vapi, Ahmedabad in Gujarat), petrochemical and bulk-drug complexes (Dahej-Jhagadia, Cuddalore SIPCOT), and dedicated pharmaceutical clusters (Taloja and Tarapur MIDC in Maharashtra, JNPC Parawada in Andhra Pradesh), alongside a narrow, geography-indication-tagged niche (Kannauj attar and essential oils).
R&D: a laggard by the Institute's threshold, but ahead of Textiles
R&D spend as a share of sales sits at 0.55% in 2024-25, within a narrow 0.47%-0.67% band across the decade, squarely in the "laggard" band (below 1%) by the Institute's own thresholds. It is nonetheless noticeably higher than Textiles' ~0.10%, reflecting the pharmaceutical component folded into this sector's NIC scope. R&D intensity is concentrated in specialty pharmaceutical and biopharma firms (Baxter Pharmaceuticals, Watson Pharma, Gennova Biopharmaceuticals, Viyash Scientific, all above 17% of sales), a sharp contrast with the refining majors that dominate the sector by revenue, all under 0.3%. The PLI scheme's pharma-specific expenditure (₹2,150.5 crore in 2024-25) is a fraction of the sector's aggregate R&D spend (₹24,744.5 crore); innovation spend here is overwhelmingly firm-funded rather than policy-subsidised.
Explore the sector: interactive mindmap
Chemicals is the steadiest all-round IIP performer among the ten sectors reviewed in this series, consistently within the Competitive HHI band, and financially healthier than Textiles on every balance-sheet measure. That headline strength sits alongside two softening signals: output is growing faster than the value added it captures, and a trade surplus that once cushioned the sector has been ground down to almost nothing by imports, mostly refined petroleum and LNG, growing faster than exports. The PLI scheme that touches this sector is real but narrow, scoped only to pharmaceuticals, not to the bulk chemicals and petrochemicals that make up most of the sector's output and investment pipeline.
References
Methodological Notes
Institute of Manufacturing and Economy · Sector Snapshots · August 2026 · NIC Divisions 19, 20, 21, 22 · Primary research: Netra Vasoya · Compiled by: Riddhi Bhargava
Author's Profile
Netra Vasoya is a BSM (Hons) student in Operations Management, Class of 2028. She interned at the Institute of Manufacturing and Economy and conducted the primary research for this sector snapshot.