Trade disruptions, API dependence, compliance costs: Pharma MSMEs spell out policy priorities on World MSME Day

As India marks World MSME Day 2026, industry leaders from the pharmaceutical sector have called for policy reforms to improve the competitiveness of small and medium drug manufacturers. They say geopolitical tensions, rising input costs, supply chain disruptions and tightening regulatory requirements are placing disproportionate pressure on MSME pharmaceutical companies.

India's pharmaceutical sector, often described as the “pharmacy of the world”, has built a strong global presence in generic medicines and vaccines. The industry reported a turnover of around Rs 2.25 lakh crore in FY25, while exports touched $30.5 billion, making a resilient MSME ecosystem increasingly important amid global supply chain disruptions.

According to Saurabh Agrawal, Director at HAB Pharmaceuticals, rising production costs and supply chain disruptions are emerging as some of the biggest challenges facing MSME pharmaceutical companies. “Commercial diesel prices remain stubbornly high, while LPG, which many pharma manufacturing units depend on, is not only expensive but also intermittently unavailable. We have been absorbing these costs internally rather than passing them on to buyers, which means the margin pressure is real and sustained,” Agrawal says.


He says higher prices of active pharmaceutical ingredients (APIs), solvents and PVC packaging materials have further increased manufacturing costs. He argues that India's heavy dependence on China for APIs leaves MSMEs particularly vulnerable to geopolitical disruptions and supply chain bottlenecks. Unlike larger companies, smaller firms have limited ability to hedge costs or maintain large inventories, he adds.

“For companies like ours serving Africa and MENA markets, elevated freight rates have made Indian generics less price-competitive. Logistics costs are increasingly acting as a silent trade barrier,” he says.

He points out that evolving Good Manufacturing Practices (GMP), WHO prequalification requirements and destination-country regulations require continuous investments in quality systems that place a greater financial burden on MSMEs than on larger pharmaceutical companies. “Piped Natural Gas (PNG) connectivity to pharma manufacturing clusters must become a national priority. If India is serious about making its pharmaceutical industry globally competitive, uninterrupted and affordable energy is non-negotiable,” Agrawal says.

He also calls for expanding the Production Linked Incentive (PLI) scheme through a dedicated MSME tier with lower investment thresholds and simplified compliance norms. According to him, the government's API park initiative should also provide easier access for MSMEs through shared infrastructure, consortium models and working capital support to reduce dependence on Chinese imports. “India's pharma strength has always been built on its MSME base. Policy must reflect that reality,” he says.

Many of these operational challenges are compounded by broader structural issues facing MSMEs, according to Mamatha Anand, Partner at Deloitte India. She says liquidity constraints, delayed GST refunds and compliance complexities continue to weigh on smaller businesses despite recent reforms.

According to Anand, delayed payments, accumulated Input Tax Credit (ITC) balances and procedural bottlenecks in GST refunds continue to lock up working capital, particularly for exporters, limiting their ability to reinvest and expand. She also says that while the Goods and Services Tax (GST) has significantly simplified indirect taxation, frequent compliance requirements and evolving regulatory provisions continue to impose a disproportionate administrative burden on smaller enterprises.

She recommends faster processing of GST refunds and quicker release of accumulated ITC balances to improve MSME liquidity. Anand also calls for greater clarity on Input Tax Credit eligibility, particularly in cases where supplier registrations are cancelled retrospectively, saying bona fide taxpayers should not face financial or legal consequences for factors beyond their control.

Mohan Jain, Director at Naprod Life Sciences Pvt. Ltd., says Indian pharmaceutical companies are navigating an increasingly complex global environment shaped by geopolitical uncertainties, supply chain disruptions and rising input costs. “India's API supply chain remains heavily dependent on China, and any disruption, whether geopolitical, logistical or regulatory, directly reverberates through cost structures. MSMEs have limited ability to hedge or stockpile, making them particularly vulnerable,” Jain says.

He says compliance with evolving global regulatory standards has also become significantly more resource-intensive, requiring continuous investments in quality systems, documentation and skilled manpower. Export-oriented companies are simultaneously facing pricing pressure, non-tariff barriers and increasing demand for more complex pharmaceutical products, he adds.

“Companies need to diversify supply sources, strengthen domestic manufacturing and leverage government schemes like the PLI programme for API manufacturing to mitigate supply chain risks,” Jain says.

According to Jain, MSMEs can also improve resilience by developing alternative supplier networks, creating strategic inventories for critical raw materials and collaborating with other manufacturers to optimise procurement. “Digitalisation of manufacturing, quality systems and supply chain monitoring will allow companies to respond faster to disruptions while maintaining product quality and global competitiveness,” he says.

He also calls for wider adoption of shared compliance platforms, modular GMP systems and strategic partnerships with distributors and regional players to improve market access, reduce regulatory costs and expand into new export markets.

According to Anand, continued simplification of GST compliance and wider adoption of digital tools such as e-invoicing would reduce manual effort, improve operational efficiency and strengthen MSME competitiveness, enabling smaller pharmaceutical manufacturers to better respond to disruptions in an increasingly competitive global market.