Compliance Burden Hampers India's $220 Billion Chemical Industry

India's USD 220 billion chemical industry, a significant source of employment and export revenue, is being severely hindered by an overwhelming regulatory compliance burden, especially affecting micro, small, and medium enterprises (MSMEs), according to industry experts.

Each unit in the sector must adhere to approximately 635 compliance requirements per month across various areas, including factory operations, health, explosives, hazardous materials, and food safety regulations.

Navigating this complex array of rules is extremely challenging for most MSMEs due to a lack of training and skilled manpower.

Even understanding the compliance needs is difficult for most MSMEs, said an expert. "Lack of training and skilled manpower makes it more challenging."

Aggravating the issue is the frequent revision of regulatory norms by authorities, with 200 compliance changes made in just the last week, 700 in the prior month, and around 1,963 in the current quarter.

While larger companies can utilize dedicated in-house teams, MSMEs face immense difficulty staying compliant. "It may be relatively easy for big players...but for MSMEs, it really is a big challenge," the expert noted.

Industry representatives are advocating for reforms to streamline the compliance process. Jaimin Vasa, chairman of the Gujarat Chemical Association, suggested "industry-specific generalized licensing, instead of different ones for regulations under the Factories Act and for health, explosives, hazardous materials, food, etc."

Variations in compliance across states add another layer of complexity for companies operating in multiple locations. Vasa urged the government to "help the units comply by making the application process simple and clearances faster."

The expert identified rent-seeking behavior around licenses and registrations as a major impediment that could potentially be addressed through digitalization and a controlled environment fostering private entrepreneurship.

The Indian chemical industry accounts for 11 percent of national exports and is projected to grow to USD 1 trillion by 2040.

It has risen from 142nd to 63rd rank in the World Bank's Ease of Doing Business index between 2014-2019. However, regulatory overhaul may be crucial for unleashing the sector's full potential.