Recognizing India’s dependence on imports, the Ministry of Commerce in March 2020 announced a INR. 3,000 crore (~ USD 400 million) revival package to establish three bulk drug manufacturing parks in India in the next five years. The same package also contains a Production Linked Incentive (PLI) Scheme for the "promotion of domestic manufacturing of critical KSMs and APIs in the country with financial implications of INR 6,940 crore (USD 911 million) for next eight years" which will be disbursed to "companies that will invest in domestic manufacturing of critical KSMs required to produce APIs".
However, the response from industry stakeholders has been lukewarm. Part of this can be attributed to the fact that since 2000, two other similar initiatives have been launched to promote domestic manufacturing of KSMs and APIs but have not been successful in reducing India’s dependence on imported drug intermediates. According to the head of a Mumbai-based pharmaceutical company, "We cannot increase the production of APIs to an extent where we end up matching the economies of scale generated by Chinese units. Our cost of production for API will be higher, which in turn would hamper the export competitiveness of the products". Keeping the prices of Indian drugs globally competitive while also switching to domestically manufactured APIs would entail "phenomenally high" incentives, investments, and subsidies.
The other cause for concern is that the scheme to set up bulk drug parks does not address many other systemic issues that puts India at a disadvantage vis-à-vis China. Higher labour costs, lack of cheap and stable power supply, and higher tax and lending rates are some of the causes for the high cost of manufacturing APIs/KSMs in India, according to industry representatives.
Table 3: Indian pharmaceutical imports from China, in 2018-2019
|Value (USD million) ||From China (USD million) ||% of total from China |
|AMOXICILLIN AND ITS SALTS ||36,7 ||32,87 ||89,56 |
|AMOXICILLIN IN CAPSULES, INJECTIONS ETC. ||0,63 ||0,47 ||74,6 |
|CEPHALEXIN AND ITS SALTS ||12,22 ||1,51 ||12,36 |
|HEPARIN AND ITS SALTS ||51,96 ||44,73 ||86,09 |
|OTHER ANTIBIOTICS ||410,47 ||291,52 ||71,02 |
|OTHER CEPHALOSPORINS AND THEIR DERIVATIVES ||15,98 ||0,02 ||0,13 |
|OTHER RIFAMPICIN AND ITS SALTS ||134,15 ||90,46 ||67,43 |
|TETRACYCLINE/OXYTETRA - CYCLINE AND HR SALTS ||13,68 ||13,66 ||99,85 |
|OTHER TETRACYCLINES AND THR DRVTVS SLTS ||39,37 ||1,36 ||3,45 |
|OXYTETRACYCLINE ||0,13 ||0,13 ||100 |
|DOXYCYCLINE AND ITS SALTS ||16,74 ||9,68 ||57,83 |
|GENTAMICIN AND ITS SALTS ||9,09 ||7,77 ||85,48 |
|NEOMYCIN ||3,03 ||2,78 ||91,75 |
|STREPTOMYCIN ||3,3 ||3,3 ||100 |
The scope for Europe-India cooperation
In March 2020, during the early days of the Covid-19 pandemic in India, the Director General of Foreign Trade (DGFT) issued a notification to restrict the export of 26 key APIs leading to great uncertainty in both the US and EU. According to India’s Pharmaceutical Export Council of India (Pharmexcil), this sudden move has negatively affected India’s image as a global supplier of generic drugs, and lead to a loss of credibility along with monetary losses. Since this decision to restrict imports was partially driven by fears of a long-term disruption of API imports from China, facilitating domestic manufacturing of APIs in India would also benefit the EU by reducing the influence of foreign countries on India’s drug exports.
To some extent, India’s dependence vis-à-vis China calls to mind the dependence of Europe vis-à-vis China. Since both face similar risks of disruption of their supplies, should they cooperate to increase the resilience of their supply chain?
Europe depends on India for 26% of its generic formulations. India also houses 253 European Directorate of Quality Medicines (EDQM) approved plants, more than 262 US-FDA compliant Pharma plants and more than 2,000 WHO-GMP (World Health Organisation – Good Manufacturing Practices) approved Pharma Plants, most of which are geared towards producing generic drugs for export to the US and Europe.
Although the volume of trade in pharmaceuticals between India and Europe is high, the relationship is neither robust nor does it extend to long-term engagements in research and development, sharing scientific know-how, supply of equipment, joint investments etc. Both parties stand to benefit from broader and deeper cooperation since it would help reduce their dependence on China. Currently, Indian manufacturers cite high start-up costs and long gestation periods as reasons for not investing in domestic API manufacturing. In such a situation, FDI from Europe, especially in greenfield projects where up to 100% FDI is permitted, would be welcome.
For India, gradually shifting to domestic manufacturing of APIs with financial, scientific and technological support from the EU would mean a reduced reliance on Chinese API imports. Similarly, shifting to Europe as a source of APIs rather than China is also an option that needs to be explored.