2025-03-11

Introduction to India's Pharma Industry:

India has established itself as a dominant force in the global pharmaceutical landscape, earning the prestigious title "Pharmacy of the World." The nation ranks as the third-largest pharmaceutical producer by volume, contributing a substantial 10 percent to global production. In terms of value, India holds the 14th position globally, representing 1.5 percent of the world market. India's pharmaceutical reach extends to over 200 countries, including sophisticated markets such as the United States, Western Europe, Japan, and Australia with the manufacturing facilities across the country operating in compliance with Good Manufacturing Practice (GMP) standards, producing bulk drugs across all major therapeutic categories.

Introduction to India's API industry:

Active Pharmaceutical Ingredients (API’s) are biologically active components in drugs that provide pharmacological activity or direct effects in disease treatment. For instance, in common medications like Crocin, paracetamol functions as the API, directly responsible for the drug's pain-relieving properties.

India is the third-largest global producer of APIs, with an 8 percent market share and over 500 different APIs manufactured. It contributes 57 percent of the APIs on the WHO's prequalified list. The market is expected to expand from USD 18B in 2024 to USD 22B by 2030, growing at a CAGR of 8.3 percent.

Historical dependence on imports:             

The Indian pharmaceutical sector has experienced a significant shift in its API supply chain over the past three decades. API imports from China have increased dramatically from a mere 1 percent in 1991 to approximately 70 percent in 2019. This surge in dependency has been primarily driven by China's competitive pricing strategy, supported by substantial manufacturing incentives and state-sponsored export subsidies. APIs represent a significant part of India's pharmaceutical market, contributing approximately 35 percent of the sector's value. These crucial components account for 40 percent of overall drug manufacturing costs on average, though this figure can rise to 70-80 percent depending on market conditions.

Challenges faced by the domestic API industry:

The Indian API sector is growing but faces challenges in the storage and transportation of thermolabile drugs, cold chain-dependent pharmaceuticals, and compliance with new barcoding systems in addition to the following problems:

• Cost advantages of foreign suppliers: The cost advantages stemming from economies of scale and government support in China make it difficult for Indian manufacturers to compete.
• Infrastructure issues: The lack of mega bulk drug parks and issues with storing and transporting thermolabile drugs and cold chain-dependent pharmaceuticals are among the major concerns.
• Supply chain vulnerabilities: Despite domestic production accounting for 30% of total API quantity, many key starting materials (KSMs) are still sourced from China, leading to price fluctuations and supply risks.

Most API production processes include chemical synthesis, fermentation, extraction from animals and plants etc. Fermentation is particularly significant for producing antibiotic APIs like penicillin and cephalosporin.

Indian API manufacturers lost their competitive edge in low-end API (e.g., Cephalosporins) production and fermentation technologies to China due to stricter pollution control norms, higher manufacturing costs, issues with the Drug Price Control Order (DPCO) 2013, lack of financial incentives and absence of large-scale mega parks.

The fermentation-based API industry in India has collapsed due to high production costs, reliance on expensive raw materials like glucose, lactose instead of cheaper alternatives like cauliflower used in China, and the capital-intensive nature of fermentation facilities. Fermentation processes demand uninterrupted power for days, which is cheaper in China compared to India. China, as the sole producer of penicillin and other intermediaries like 6-APA, dominates pricing and renders Indian production unviable. Consequently, many Indian manufacturers have ceased fermentation production in favour of cheaper imports from China.

The sector also grapples with stringent environmental regulations, especially around effluent treatment and waste management, which increase production costs and lead to negative public perception.

Government initiatives to promote self-reliance:

To address these challenges, the Indian government is implementing several schemes aimed at promoting domestic API manufacturing:

• Production Linked Incentive (PLI) scheme (2020-30): This scheme provides financial incentives for manufacturing 41 Key Starting Materials (KSMs), Drug Intermediates (DIs), and APIs. It offers incentives on incremental sales for six years with a total outlay of INR 6,940 crore.
• Scheme for promotion of bulk drug parks (2020-25): Grants up to INR 1,000 crore per park (or 70 percent of project cost) for creating common infrastructure facilities.
• PLI scheme for pharmaceuticals (2020-29): This scheme provides incentives for manufacturing KSMs, DIs, and APIs amongst other categories of formulations with a total outlay of INR 15,000 crore.

Current progress and industry response:

The Ministry of Fertilizers and Chemicals, Department of Pharmaceuticals has selected 53 APIs based on minimum annual production capacity and threshold investment for key fermentation and chemical synthesis-based APIs to promote domestic manufacturing.

• For 14 of the 53 critical APIs, over 60 percent of the required quantity is sourced from domestic suppliers, with the price difference between Indian suppliers and imports being less than 20 percent. This categorizes these APIs as low risk. For example: Levetiracetam, Carbamazepine.
• Only 2 of the 53 critical APIs have 60 percent of their requirements met by domestic suppliers along with the price difference compared to imports exceeding 20 percent. The government should consider subsidizing local suppliers to enhance domestic consumption and incentivize cost-reduction efforts. These can be classified as medium risk drug. For example: Ritonavir, Valsartan.
• For drugs where domestic dependence is less than 60 percent, there is a significant reliance on imports, which poses a considerable challenge. These drugs can be classified as high-risk due to the greater importance of achieving self-reliance. For example: Telmisartan, Azithromycin.

As a result of the government initiatives, there is a notable shift in the industry landscape. Companies are increasingly investing in API production facilities to meet domestic demand and reduce reliance on imports. The segment is witnessing heightened competition for management-level executives due to the influx of private equity-owned platform companies entering the market. The Union Health Minister highlighted that India has made notable progress in API production, successfully initiating the manufacturing of 38 APIs over the past 18 months to boost India’s self-reliance in API production.

However, there remains a disparity between international and Indian pharmaceutical companies regarding R&D investment; while global giants allocate 10–25% of profits to R&D, Indian companies currently allocate only 6-7 percent.

Future prospects and recommendations:

Looking ahead, there is significant potential for India to achieve self-reliance in API production. To support this goal:

1. Recommendations for medium/high risk API’s:
   • Medium risk: Since the price difference between the APIs supplied by Indian suppliers and those from the leading source of import is very high, the government could consider subsidising local suppliers to increase domestic consumption, along with taking measures to incentivise companies to undertake cost-reduction initiatives.
   • High risk: Concentrated efforts are required to remove dependencies for these APIs. Government may need to negotiate trade deals and engage in tie-ups to avoid any supply issues in the near term.
2. Fermentation products:
   • For fermentation-based products like Pen-G, which are not made domestically, determining the actual cost and selling price is challenging. Manufacturers will need time to establish/discover the price, so selling price should not be a criterion to evaluate their eligibility for availing schemes.
   • Under the PLI scheme, nine fermentation-based production plants have been approved, with only three currently operational due to delays in land acquisition, obtaining environmental clearance, technology availability issues. The approval process for environment clearance could be brought down to 2 months from the current timeline of 4-6 months as delays adversely impact industry competitiveness both domestically and in export markets.

By implementing these recommendations, India can strengthen its API industry and secure its status as a global leader in pharmaceuticals while ensuring affordable healthcare solutions domestically.