Budget 2023: 'Pharmacy of the world' has a Chinese Achillean heel

India is ahead of many others in pharmaceutical formulations but it has to go a long way to be a key player in the segment’s raw material space. This, say industry players, is where the budget should offer some focussed assistance.

There is a dire need to encourage allocation of separate funds for research and development, says Sanjeev Jain, Joint Managing Director of homegrown pharma company Akums Drugs & Pharmaceuticals. His budget wishlist includes incentives for domestic manufacturers of active pharmaceutical ingredients (APIs) and a reduction in direct and indirect taxes. Subsidies for operational expenditures — such as electricity and manpower — will greatly help boost the sector’s innovative portfolio and cost-competitiveness, as well as scale up production capacities, he adds.

India’s $50-billion pharma sector is the 3rd largest in the world in volume and 14th largest in value. It contributes about 2% to India’s GDP and around 8% to merchandise exports. The domestic industry contributes 3.5% to global export of drugs and medicines. The country has the second-highest number of US FDA-approved plants outside the US. It’s also the largest provider of generic drugs globally. These make the country a worthy candidate to be called the pharmacy of the world. However, its over-dependence on China for pharma raw materials remains an Achilles’ heel.


These raw materials are called APIs or key starting materials (KSMs). In recent years, China has become India’s sole source of API imports for paracetamol, a common antipyretic and anti-inflammatory drug. Similarly, India has a very high dependence on China for antibiotics like ciprofloxacin and amoxicillin. New Delhi-based Research and Information System for Developing Countries (RIS) estimates the dependence on Chinese imports for APIs for essential medicines at 80-100%.

The government has lately been pushing for self-reliance across sectors.

‘PLI helps but research incentives needed’
The industry hails the production-linked incentive (PLI) scheme, calling it one of the most important actions taken so far to support the domestic production of APIs, KSMs and drug intermediaries. But the budget should further fuel this mission, say industry stakeholders.

Pharma players tell ET Online that despite PLI, the reliance on imports from China for APIs and bulk medications remains a problem. They want the budget to expand the PLI scheme so that more Indian manufacturers can get the incentives.

Nikkhil K Masurkar, CEO of Entod Pharmaceuticals, says one thing the budget should do is speed up the self-reliance environment for pharma firms. “Aatmanirbhar environment for pharmaceutical end-to-end development, from bulk medications to completed formulations, has to be sped up with the creation of a research-linked incentive scheme. For corporations investing in research on new treatments or new biological entities, the government should also look at a 200% weighted deduction and a special allocation for R&D in biopharmaceuticals. This would increase foreign R&D investment even further,” Masurkar says. These steps will give the local manufacturers the support needed to compete in the API industry.

An interruption in the flow of supplies from China brings in volatility and affects the pricing dynamics, says Jain, adding that this budget needs to focus on end-to-end support to the segment.

Industry body Indian Drug Manufacturers Association (IDMA) maintains that PLIs are the right way to reduce import dependence. The government and the IDMA are collaborating on PLI 2.0; the new financial year is expected to bring some clarity in this direction.

“PLIs have revitalised the interest of entrepreneurs in the API space. However, investments in fermentation-based API-KSM space have seen limited interest. India needs to up its presence in fermentation-based APIs/KSMs, biologics and large molecules and also in some basic chemical space,” says Virinchi Shah, IDMA president.

He also bats for incentivising R&D and, more specifically in the SME space, revising the RoDTEP remissions for both API and formulations, additional incentives for investments in effluent treatment utilities and additional support to brownfield API and intermediate companies. “The government should also consider simplifying the environment clearance procedures for faster sectoral growth,” he adds.