Supply disruption scares and price hikes wakeup call for India to reduce dependence on China for APIs, says GlobalData

The impact of the coronavirus (Covid-19) outbreak on industries ranging from technology to automotive has been the subject of intense analysis in the recent months. This has exposed dependence of India on China for its active pharmaceutical ingredient (API) requirements. For India’s pharma industry, which is staring at a probable supply chain disruption of APIs, this is a wakeup call to reduce dependence on China, says GlobalData, a leading data and analytics company.

GlobalData forecasts the Indian pharmaceutical market to increase from nearly US$34.3bn in 2020 to more than US$45bn by 2025. Reportedly, Indian pharma players depend heavily for their bulk drugs and drug intermediates on China. According to the Department of Commerce of India, India’s bulk drug imports from China were US$2.40bn from China in 2018-19, up by nearly 17% vs. US$2.05bn in 2017-2018 and drug formulation pharmaceutical imports from China were US$148m in 2018-19, up by 16.81% vs. US$127m in 2017-18.

Against this backdrop, the Indian government had already called up the Indian pharma companies to ramp up the production of 38 APIs to end dependence on China. 

However, according to a recent report submitted by a high level committee to the Department of Pharmaceuticals of India, 40 consignments of APIs were received from China between 26 and 27 February 2020 and it is expected that the import of raw materials from China will likely resume fully by end of March 2020 due to receding fresh Covid-19 cases.

Sasmitha Sahu, Pharma Analyst at GlobalData, comments: “While the raw material shortage is not likely to be as acute as presumed, it has definitely exposed the heavy dependence of Indian pharma industry on China since over 70% of the APIs are imported from the country.”

The overhaul of China’s environmental regulatory policies between 2016 and 2018 led to the closure of many API facilities and price hike of many APIs by nearly 200%, which added to the cost of manufacturing formulations in India. Moreover, India could be at the receiving end of any failed negotiations during the impending US/India trade tariff discussions after the November 2020 US presidential elections.

Ms. Sahu adds: “With the US/India tariff negotiations still active, similar disruptions or price hikes cannot be ruled out in future. Considering that time and again, the Indian pharma industry has had to face price and supply upheavals, it has become imperative for India to become self-reliant with regards to its API needs.”

Since India’s Draft Pharmaceutical Policy 2017 failed to attract API manufacturers, there have been fresh proposals for long tax breaks, exemptions for APIs and formulations made from such APIs from Drug Price Control Order (DPCO) and setting up of a corpus fund towards API industry development.

Ms. Sahu concludes: “If implemented, it will help in narrowing down the gap between Indian and Chinese API prices, and will likely drive the preference for domestic APIs due to the ease and reliability of supply. Moreover, the reduction in price and reliability of supply will only further increase the competitiveness in the pharma formulation market both locally and globally.”

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