Where Does India’s Chemical Industry Remain Exposed to Global Supply Chains?

Despite years of “Atmanirbhar Bharat” rhetoric, a Production-Linked Incentive (PLI) scheme for bulk drugs, and a multi-billion-dollar petrochemicals investment pipeline, India’s chemical industry remains structurally tethered to imports for several of its most consequential inputs.

The gap isn’t closing uniformly, for some chemicals it is narrowing; for others, it is widening even as headline capacity numbers grow.

Where India still can’t do without the world

Methanol

India is the world’s second-largest methanol consuming market, behind only China, but domestic production covers roughly half of demand or less. Import value peaked near $986 million in 2022 and stood at about $878 million in 2024, with Iran the single largest supplier by value, followed by Saudi Arabia and Qatar, meaning a large share of India’s methanol book still runs through the Persian Gulf and the Strait of Hormuz.

Volumes have grown faster than value in recent years (a ~14% average annual rise in tonnage terms through 2023), reflecting robust downstream demand from formaldehyde, acetic acid and, increasingly, methanol-blending fuel applications that the government itself is promoting.

Ammonia

Fertiliser producers, the largest ammonia consumer, run a coordinated, consortium-based import programme precisely because domestic supply can’t be trusted to clear peak-season demand alone.

In mid-2026, a consortium led by Indian Potash Limited, including IFFCO, Paradeep Phosphates, Coromandel International and GSFC, moved to secure 536,000 tonnes of bulk anhydrous ammonia for delivery between June and August alone, with volumes scheduled to climb from 173,000 tonnes in June to 185,000 tonnes by August.

Oman and Saudi Arabia together account for roughly two-thirds of India’s anhydrous ammonia import value, with Indonesia and Qatar next. Ammonia imports volumes did fall in late 2025 amid softer demand, but the underlying reliance on West Asian and Southeast Asian gas-based ammonia hasn’t gone away, and Q1 2026 pricing was already reflecting freight and insurance premiums tied to Strait of Hormuz disruptions.

Sulphur

This is the input most exposed to sudden repricing. In the twelve months to October 2025, India’s sulphur import bill surged 153% in value even though volumes rose a comparatively modest 30%, almost entirely a price story, not a demand story, with proxy prices nearly doubling year-on-year.

Oman’s share of India’s sulphur import value jumped from 19% to 31% in under a year as domestic refinery-linked sulphur output (a byproduct of BPCL Kochi and CPCL Manali operations, among others) was squeezed by planned refinery maintenance.

Fertiliser majors like Pradeep Phosphates and Coromandel International were left tendering into a tightening spot market at exactly the wrong moment for margins.

Propylene and petrochemical feedstocks.

Capacity utilisation for propylene and ethylene, the backbone of India’s plastics, packaging and agrochemical intermediates chain, has been on a declining trend since 2019, even as roughly $37 billion of new petrochemical capex is in motion.

The gap showed up starkly when West Asia tensions escalated in 2025–26: IOCL’s Paradip propylene unit, HPCL’s supply to Andhra Petrochemicals, GAIL’s Uttar Pradesh polyethylene unit and BPCL’s acrylic acid facility all faced disruption in quick succession, with ripple effects reaching an estimated 30,000 downstream MSMEs and roughly 5 million jobs tied to plastics and packaging.

India’s petrochemical “intensity index”, a measure of how much of demand is served domestically has crept up to around 13% in 2025, which underlines how much room remains before the country is self-sufficient rather than merely expanding alongside demand.

Phenol and Acetone

These building blocks for pharmaceuticals, agrochemicals and engineering plastics remain import-exposed enough that Deepak Nitrite, India’s dominant domestic phenol-acetone producer, has publicly signalled interest in expanding capacity specifically under the chemicals PLI push, an implicit admission that current domestic supply doesn’t cover the market.

Bulk drug intermediates and APIs

Pharmaceuticals is arguably India’s starkest case of import concentration risk: the government’s own estimate is that India imports over 70% of its bulk drug (API and Key Starting Material) requirements from China.

The PLI Scheme for Bulk Drugs, running FY2022-23 to FY2028-29 with a ₹6,940 crore outlay, has notified 41 critical products; as of the most recent progress update, 33 products have been subscribed, 48 greenfield projects approved, and 38 projects across 28 products commissioned, real progress, but still a minority of the addressable list, and concentrated in newer capacity that hasn’t yet fully displaced import volumes.

Specialty and speciality-fertiliser chemicals

India imports close to 95% of speciality fertiliser inputs, water-soluble fertilisers and micronutrient blends critical to high-value horticulture, overwhelmingly from China.

When China effectively slowed speciality fertiliser exports in parts of 2025 through inspection delays rather than a formal ban, Indian buyers scrambled to diversify toward Belgium, Germany, Egypt, Morocco and the US, a real-time illustration of how a single-country dependency can be weaponised informally, without an explicit export ban ever being announced.

Sourcing patterns are shifting, but not always by choice

The clearest recent shift is geopolitical hedging rather than strategic diversification. Russia has become India’s single largest fertiliser supplier by value (roughly 27% of fertiliser import value in Q1 2026), with Russian shipments up 41% in 2025 to 6.5 million tonnes, driven as much by discounted pricing and government-to-government arrangements (including a joint venture with Uralchem for a 1.7 million tonne urea plant in Samara) as by any considered supply-security strategy.

China’s share swung sharply in the other direction: after restricting urea exports through most of 2025 to protect its own domestic supply, Beijing eased curbs in late 2025, and Chinese fertiliser shipments to India jumped 173% in FY26 to 5.02 million tonnes, showing how quickly China can turn the tap on or off, and how dependent Indian buyers still are on that tap when it’s open.

For methanol, the picture shows partial diversification at the margins, Switzerland and Germany posted over 90% import growth in the latest data, but this is diversification around the edges of a market still anchored by Iran, Saudi Arabia and Qatar.

For sulphur, Oman’s rapidly rising share actually represents concentration, not diversification, as buyers gravitate toward whichever Gulf supplier can offer the most reliable near-term cargoes.

Is domestic capacity actually closing the gap?

The honest answer, chemical by chemical, is: partially, and unevenly.

• Pharma/API: Real capacity is coming online through the PLI Bulk Drugs scheme, but 28 of 41 notified products commissioned (as of the latest count) still leaves a meaningful minority of critical intermediates without domestic backup, and existing capacity additions have not yet visibly dented the 70%+ China-dependence figure in aggregate trade data.
• Petrochemicals: The $37 billion capex pipeline is real and includes marquee projects like BPCL Kochi’s new INR 5,514 crore polypropylene unit, but utilisation rates for propylene and ethylene have been falling since 2019, meaning new capacity is running into an efficiency and reliability problem, not just a scale problem. A plant that isn’t running at full utilisation doesn’t reduce import dependence even if its nameplate capacity looks impressive on paper.
• Fertiliser feedstocks (ammonia/sulphur): New projects such as the ₹10,601 crore ammonia-urea plant in Dibrugarh, Assam (foundation laid December 2025) explicitly target import substitution, but these are multi-year builds against a demand base, driven by record urea sales approaching 40 million tonnes in FY26, that is itself growing. Capacity additions are running a race against consumption growth, not against a fixed target.
• Specialty chemicals: A dedicated PLI scheme has been discussed since 2021 but, as of the most recent tracking, remains “in the pipeline” rather than fully operational in the way the bulk drugs scheme is, meaning this segment, valued around $36 billion in 2021 and forecast toward $61 billion by 2026, is scaling largely on private capex and China+1 diversification demand rather than a targeted government push.

Geopolitics, trade policy, and structural chokepoints

Three distinct risk categories are now converging on Indian chemical supply chains simultaneously:

1. Shipping-lane and regional conflict risk.

The 2025–26 escalation around the Strait of Hormuz didn’t just move prices, it physically halted production at multiple Indian petrochemical units within weeks, because feedstock and intermediate flows through that corridor are that concentrated. Ammonia, sulphur and a meaningful share of methanol import all transit Gulf shipping lanes that have no easy substitute route.

2. Informal trade-policy risk from China.

The specialty fertiliser slowdown in 2025, implemented through inspection delays rather than a formal export ban, is a template worth flagging to procurement teams: single-country dependence (approaching 95% for some specialty fertiliser categories, and over 70% for bulk drug intermediates) is exploitable without any explicit policy announcement, which makes it harder to plan around than a clearly telegraphed tariff or quota change.

3. Domestic structural bottlenecks that keep import substitution slow.

Refinery maintenance cycles (as seen with BPCL Kochi and CPCL Manali tightening sulphur supply), capacity utilisation shortfalls in propylene/ethylene, and the sheer multi-year lead time on projects like Dibrugarh’s ammonia-urea plant all mean that even well-funded import-substitution efforts take years to show up in trade statistics a mismatch with how quickly downstream industries need supply certainty.

Who’s most exposed downstream

• Fertiliser and agriculture-input companies direct exposure to ammonia and sulphur price/volume swings, with subsidy structures (₹1.9 lakh crore in combined urea and nutrient-based subsidies in 2024-25) absorbing some of the shock at the farmer level but leaving producers exposed to margin compression.
• Plastics, packaging and consumer goods (FMCG) manufacturers roughly 70% of India’s consumer packaging is flexible plastics dependent on propylene/ethylene derivatives; refinery disruptions cascade quickly into this segment, hitting the 30,000 MSMEs and ~5 million jobs estimated to sit in the plastics/packaging value chain.
• Pharmaceuticals API and KSM manufacturers remain the most single-country concentrated (China, >70%), making this the sector policymakers most frequently cite as a national-security-adjacent vulnerability, not just a commercial one.
• Horticulture and specialty-crop agriculture reliant on imported speciality fertilisers and micronutrients (~95% import share), this is a smaller-value but high-sensitivity segment that saw real-time disruption in 2025.
• Paints, coatings, dyes and agrochemical intermediates indirectly exposed through phenol, acetone and propylene derivative pricing, with margin pass-through to customers often resisted in a competitive domestic market.

Key Priorities for Reducing Import Dependence

Industry and policy commentary converges on a short list of structural fixes, though the emphasis differs by who’s speaking:

1. Feedstock security, not just incentives. PLI-style production incentives address the demand/investment-case side; they don’t solve gas or naphtha allocation, which several industry voices, including at FICCI’s chemicals platform, have flagged as the deeper constraint on backward integration.
2. A dedicated, fully operational specialty chemicals PLI, rather than one that remains in planning years after being first floated.
3. Faster resolution of the inverted duty structure that industry associations have repeatedly raised with government, where importing a finished product can be cheaper than importing the feedstock to manufacture it domestically.
4. Diversified, not just cheaper, sourcing, the Russia and China swings of the past two years show Indian buyers still gravitate toward whichever supplier offers the best near-term price, which is rational commercially but reintroduces concentration risk one supplier at a time rather than reducing it.
5. Capacity utilisation, not just capacity addition, particularly in petrochemicals, where new investment is running ahead of the operational reliability of existing plants.

 

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