India’s pharmaceutical industry is at a pivotal juncture. With its well-established prowess in generic drug manufacturing, it has been called on by the world to build a reliable base for the manufacture of raw materials, which offers an opportunity for India to attract the bulk of the pharmaceutical supply chains away from China. India has answered this call and is well-poised to tap into its potential, gather its best in the mission and meet this geopolitical demand.
In recent years, India has been actively promoting the growth of domestic manufacturing in active pharmaceutical ingredients (APIs), and this policy is already yielding results. The world sees India as the greatest alternative to China in this aspect and India is determined to seize the opportunity.
In just the last two years, India has started producing 45 new APIs for which it was earlier dependent on imports from China. Big Pharma is also looking to increase orders with Indian contract manufacturers to steer supply chains away from China.
“India has started producing 45 APIs after China stopped providing key ingredients during the Covid-19 pandemic,” said Union Health Minister Mansukh Mandaviya at the National Institute of Pharmaceutical Education and Research (NIPER) in September.
The Narendra Modi government has nudged the Indian pharma industry to actively pursue API manufacturing and shed dependence on China. Its support has also come in the form of Production-Linked Incentive (PLI) schemes. In 2021, the Union Health Ministry launched a PLI scheme with an outlay of Rs 15,000 crore over six years to promote domestic manufacturing of APIs, KSMs (key starting materials) and drug intermediaries.
The China Problem
China is deeply entrenched in the pharmaceutical supply chains. It extensively produces APIs, KSMs, and drug intermediates, all of which are crucial for the world’s pharma industry. APIs are the active ingredient that deliver the intended therapeutic effect in a drug. These are produced with KSMs and intermediates. KSMs or key starting materials are raw materials comprising basic chemicals needed in the manufacture of drugs. Intermediates are generally chemical compounds used in the process of making APIs.
China is a global leader in the production and export of APIs with 40% share in global API exports. Over the past three decades, the proportion of active pharmaceutical ingredients (APIs) imported into India from China has surged, rising from approximately 1% in 1991 to around 70% in 2019.
The world’s pharma industry has learnt hard lessons from its sweeping dependence on China for APIs in past few years — first during the US-China trade war and then with Covid when supply chains met crippling snags owing to lockdowns in China. Tensions with India at the border have also contributed to the problem as Indian drug manufacturers heavily rely on raw material from China.
It does not help that in the recent past, there has been a steep increase in the actual market price of some of the APIs imported from China contributing to market price volatility affecting Indian drug manufacturers.
Untapped Potential
At the pinnacle of the global pharmaceutical landscape, India proudly bears the title of the ‘Pharmacy of the World’. Most noteworthy is India’s contribution to about 20% of global exports in generic drugs. Over the past few decades, the Indian pharmaceutical industry has witnessed substantial growth, securing its position as the third largest producer by volume and the 14th largest by value globally.
Contributing approximately 1.72% to the nation’s GDP, the industry is projected to reach $65 billion by 2024 and $130 billion by 2030.
This remarkable growth is fuelled by an increasing demand for affordable and high-quality medicines, both domestically and internationally.
India has firmly established itself as a critical player in the global pharmaceutical market, with exports experiencing an impressive 103% growth since 2013-14, reaching Rs 1,83,422 crore in 2021-22.
The Active Pharmaceutical Ingredient (API) segment is a pivotal component of the pharmaceutical industry, contributing approximately 35% to the market. India holds the position of the third-largest producer of APIs globally, commanding an 8% share in the industry.
With the manufacturing of over 500 different APIs, India contributes 57% of APIs to the World Health Organization’s prequalified list.
Forecasts indicate that the Indian API market is poised to grow at a Compound Annual Growth Rate (CAGR) of 13.7% in the initial four years, surpassing the generic API industry by about 8%.
The Indian API sector has garnered significant interest from investors and venture capitalists due to the country’s robust domestic market, advanced chemical industry, skilled workforce, adherence to stringent quality and manufacturing standards, and cost advantages (approximately 40% lower than in the West) for establishing and operating modern plants, providing a distinct edge.
India produces more than 500 APIs and the number is growing fast to meet the country’s ambition to manufacture raw materials locally. The PLI scheme launched by the Modi government has found a positive response from industry majors. Major pharma companies like Sun Pharmaceuticals, Cipla, Dr Reddy’s Laboratories, Glenmark Pharmaceuticals, Wockhardt, Biocon, Biological E, Panacea Biotec, Torrent Pharma, Aurobindo Pharma, Intas Pharma, Natco Pharma and Lupin.
Bulk manufacturing of raw materials needed for drugs is a critical challenge for India, which is tagged often as the ‘Pharmacy of the World” with its dominance in generic drugs. China maintains its hegemony with highly competitive prices that are the result of cost-efficiency in production, high labour productivity, cheaper electricity, logistics costs and supportive government policies. India also needs to compete with China in the realm of ease of doing business to establish extensive manufacturing capacity for pharmaceutical raw materials.
The Indian Fix
India is best placed to offer a fix to the world’s heavy dependence on China for pharmaceutical raw materials. In a strategic move to harness its API potential, India is actively developing a comprehensive and supportive ecosystem. In 2020, the government granted approval for a PLI scheme, allocating Rs 6,940 crore to promote the domestic manufacturing of Key Starting Materials (KSMs)/Drug Intermediaries (DIs) and APIs. The manufacturing of 45 active pharmaceutical ingredients has commenced in India under the PLI scheme, representing about 70% of APIs for which the country has a 90% import dependence.
Simultaneously, the Department of Pharmaceuticals has granted “in-principle” approval to proposals from Himachal Pradesh, Gujarat, and Andhra Pradesh under the Promotion of Bulk Drug Parks scheme. With a budget of Rs 3,000 crore, this initiative aims to provide financial assistance to these states for establishing bulk drug parks, thereby reducing manufacturing costs through the creation of world-class common infrastructure facilities. This strategic move is anticipated to enhance the competitiveness of the domestic bulk drug industry.
Additionally, the Government of Assam has proposed a pharmaceutical park in Chaygaon, Kamrup Rural, covering 100 acres with an estimated project cost of Rs 153.64 crore.
In fostering innovation within the industry, various measures have been proposed, including raising the limit for foreign direct investment (allowing up to 100% through the automatic route for Greenfield pharmaceutical projects) and implementing a new strategy for safeguarding intellectual property rights.
These measures have collectively instilled confidence in India’s pharma industry with Big Pharma keen on placing its bets here. If successful in its endeavour, India will not only become a major exporter of APIs but also give way to thousands of new pharma jobs in the country.
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