A reduced dependence on Chinese API imports is the need of the hour

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

Pharmacy feature

A reduced dependence on Chinese API imports is the need of the hour

Current times bear testament to the external uncertainties of life, industry, and commerce. Uncertainities may arise due to rising geopolitical tensions or are induced by natural calamities. The biggest fallout of these unforeseen calamities has been on supply chains; India, in that sense, has had a wake up call when it comes to its pharma industry. The country is alluded to as being the pharmacy of the world and 1 out 4 pills consumed in the U.K. and 1 in 3 consumed in the U.S as per news reports are made in India. Can you then contemplate a scenario where you are in dire need of life saving medicines for friends or family and find that they have run out of stock? Such a scenario is akin to a nightmare.

Image Source: NAWADHI Market Research

The stark reality of India’s pharma success story is that it is heavily dependent on China for  Active Pharmaceutical Ingredients (APIs): The therapeutic effect of the drugs manufactured in India is due to the chemicals created in China. For certain life-saving drugs created in India, the dependence on China for APIs is as high as 90 percent, as per estimates.

During the pandemic, India’s pharma sector’s vulnerability to Chinese imports lay bare. On its part, the Indian government has announced various initiatives and incentives to promote indigenous API manufacturing. Is the narrative for India’s pharma sector set to change? Let’s take a closer look:

Ramping up local API manufacturing

In March, 35 APIs were manufactured at 32 sites across India under a government programme that began two years ago. According to an estimate by ratings company ICRA Limited, the Indian subsidiary of Moody’s, this will cut reliance on China by up to 35% by the end of the decade.

The momentum for increasing the indigenous production of APIs was initiated in mid-2020 under production linked incentive scheme that was launched by the government; this period is notable as the tensions between China and India were high. By 2025, local companies would have significantly increased domestic manufacturing to $520 million owing to the PLI program.

The government has set aside nearly $2 billion in incentives for both private Indian enterprises and foreign players to begin producing 53 APIs for which India is primarily reliant on China.  The initiative involves some of India’s largest pharmaceutical corporations such Sun Pharmaceutical Industries, Aurobindo Pharma, Dr. Reddy’s Laboratories, Lupin, and Cipla among others.

A recent Times of India report highlights that India’s imports of raw materials to produce vital medicine will be reduced by 25% in a crucial step toward increasing drug security.

 Increased R&D spend

While India is known for being a generics hub, an increased R&D spend and innovation is pivotal to India consolidating its position as the ‘pharmacy of the world’. Already, leading Indian pharmaceutical companies are planning to increase their research spending over the next five years, as the Indian pharmaceutical market is expected to grow to $130 billion in the next ten years. Presently, India’s R&D spend is at  7-9 percent, but there are indications by pharma leaders in the country that this will increase to 9-12 percent in the next 5 years.  The potential for India’s domestic pharma market is also increasing: It is expected to reach $ 65 billion by 2024 and $120-130 billion by 2030 as per the IBEF.

The 2022 budget too had increased the R&D impetus for the pharma sector. With a variety of policies and agile efforts, the 2022 budget put a specific emphasis on the sunrise industries, making pharma verticals like biotechnology eligible for funding and assistance to strengthen local capabilities and enhance R&D. (R&D). Undoubtedly, this move will increase the pharma sector’s self-reliance. The budget also focuses on building an open platform for the National Digital Health Ecosystem, which includes digital repositories and registering health providers, as well as expanding the generation and acceptance of Unique Health Identity and providing universal healthcare, in line with the government’s vision of creating an Aatmanirbhar Bharat.

The slew of these measures is helping create a canvas for a self-reliant pharma industry that is more resilient to external supply chain shocks. It could also lead to more innovative pharma products that draw from India’s rich reservoir of healthcare talent and knowledge. In that sense, the pharmacy of the world is heralding a renaissance of talent, innovation, and self-reliance unto itself.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

Leave a Comment

Your email address will not be published.