India's pharmaceutical sector has seen a significant boost in investments through its Production-Linked Incentive (PLI) schemes, surpassing initial projections. However, the country continues to grapple with a heavy reliance on China for crucial pharmaceutical ingredients.

PLI Schemes Outperform Expectations

The bulk drugs PLI scheme, launched in March 2020 with a ₹6,940.00 crore outlay, has attracted actual investments of ₹4,709.00 crore. This figure impressively exceeds the committed investments of ₹3,938.50 crore. The scheme has successfully created production capacity for 26 key starting materials, Active Pharmaceutical Ingredients (APIs), and intermediates. It has generated sales of ₹1,962.00 crore, including exports worth ₹479.00 crore.

Broader Pharmaceutical PLI Scheme Shows Remarkable Growth

The more extensive ₹15,000.00 crore pharmaceutical PLI scheme, encompassing 55 companies, has witnessed even more dramatic results. Actual investments have more than doubled, reaching ₹38,543.00 crore against the committed ₹17,275.00 crore. The scheme has driven cumulative sales to an impressive ₹2,89,606.00 crore, with exports accounting for 64% of this figure.

Persistent Dependence on Chinese Imports

Despite the success of the PLI schemes in boosting domestic production and investments, India's reliance on China for APIs has paradoxically increased:

• API imports from China rose from 64% in FY14 to 71% in FY23 by value
• By volume, the dependence increased from 62% to 75% over the same period

In the fiscal year 2023-24, India imported bulk drugs and intermediates worth ₹37,721.88 crore, with nearly 72% sourced from China. The dependence is particularly acute for essential antibiotics:

• For cephalosporins and penicillin, reliance on Chinese imports reaches up to 90%

Challenges and Implications

This data presents a complex picture of India's pharmaceutical sector. While the PLI schemes have successfully stimulated domestic investment and production, they have not yet significantly reduced the country's dependence on Chinese imports for critical pharmaceutical components.

The increased reliance on Chinese APIs, especially for essential antibiotics, raises concerns about supply chain resilience and national health security. It underscores the need for continued efforts to boost domestic production of these crucial ingredients and reduce import dependence in the long term.

As India's pharmaceutical sector continues to grow and evolve, balancing the benefits of the PLI schemes with strategies to reduce import dependence will be crucial for the industry's sustainable development and the country's healthcare autonomy.

Indian pharmaceutical company shares fell on Thursday following US President Donald Trump's announcement of an additional 25% tariff on Indian exports to the United States, raising the total rate to 50%. While the pharma sector remains exempt currently, Trump indicated that duties on drug exports are likely to be introduced soon.

Nifty Pharma dropped 0.66% intraday, underperforming the benchmark Nifty 50 which fell 0.46%. Major companies including Zydus Life, Sun Pharma, Dr. Reddy's Laboratories, Cipla, Divi's Laboratories, Aurobindo Pharma, and Biocon declined, while Lupin rose 0.20% against the trend.

The US is a key market for Indian drugmakers, with generic medicines currently attracting zero tariffs under reciprocal trade measures. However, this exemption is under review by the US Department of Commerce. If the proposed 50% tariff extends to pharmaceutical exports, it could significantly impact margins and competitiveness for Indian firms.

Impact on Indian Pharma Companies

The potential inclusion of pharmaceuticals in US tariffs could have several implications for Indian drug manufacturers:

1. Market Access Challenges: Indian pharmaceutical companies may face difficulties in maintaining their competitive edge in one of the world's largest pharmaceutical markets.

2. Cost Pressures: The introduction of tariffs could force Indian pharma firms to either absorb the additional costs or pass them on to US consumers, potentially affecting drug prices in the American market.

3. Investor Uncertainty: The possibility of tariffs has introduced an element of uncertainty that may impact investor confidence in Indian pharmaceutical stocks.

Significance for India-US Trade Relations

This development is significant in the broader context of India-US trade relations:

• It highlights the pharmaceutical sector as a potential point of contention in bilateral trade negotiations between the two countries.
• The decision could affect the role that Indian pharmaceutical companies play in the global healthcare supply chain, particularly in providing affordable medicines to the US market.

Industry Reaction

While specific comments from industry leaders are not available, the stock market reaction suggests concern within the sector. The decline in pharmaceutical stocks indicates that investors are factoring in the potential impact of these tariffs on the industry's performance.

Looking Ahead

As global trade dynamics continue to evolve, Indian pharmaceutical companies will need to closely monitor developments in US trade policy. The industry may need to explore strategies to mitigate the potential impact of tariffs, such as diversifying markets or considering local manufacturing options in the US.

The pharmaceutical industry remains a key component of India's export basket, and any changes in trade policies could have significant implications for its position in the global pharmaceutical supply chain, particularly in the critical US market.