No love for the middle: CPHI Milan exposes India’s pharma scaling challenge

MILAN: India's pharmaceutical and chemical manufacturers are seeing a growing opportunity as global companies look to diversify supply chains beyond China. For many small and mid-sized companies (MSMEs), which account for around 40-50% of the sector’s production value, however, the bigger challenge is not finding demand but building the scale, technological capabilities, regulatory expertise and infrastructure needed to capture it.

Officials from Indian pharmaceutical and chemical companies attending CPHI Milan told The Economic Times Digital that the China+1 opportunity is indeed real, but India's ability to convert that opportunity into sustained export growth remains constrained by a set of structural problems. And the most persistent concern is what several companies referred to as a “missing middle” in India's industrial ecosystem.

Companies that have grown beyond the smallest scale often find that support becomes less accessible just as they need additinal capital to expand production, upgrade facilities, invest in research and development and meet increasingly complex regulatory requirements in developed markets.


Mega Karnani, Director of Pune-based Deccan Nutraceuticals Pvt Ltd, who was exhibiting at the CPHI expo, said, "Micro companies may qualify for certain government schemes, while large companies have greater financial and operational resources. Medium-sized companies can find themselves caught between the two."

For Indian manufacturers trying to become global suppliers, this gap can be significant.

S.K. Upadhyay, Managing Director of Sun Moon Pharmaceuticals, echoed the concern, saying medium-sized companies often receive less support than micro enterprises or large businesses. The resulting gap can discourage expansion, as moving up the scale brings higher capital and compliance costs without a corresponding increase in targeted incentives.

“MSMEs are trying to reach for the sky, but they, especially mid-sized firms, are handicapped in multiple ways, and will need a lot more support from the government,” said Karnani.

China+1 opportunity

The global push to reduce dependence on China has created an opening for Indian manufacturers, particularly in pharmaceuticals, chemicals and intermediates. But MSME pharma exporters at CPHI Milan said that the shift is not happening uniformly.

China continues to have major advantages in scale, technology and supply-chain depth. In some product categories, Indian companies cannot compete purely on price, according to several small exporters at the Milan expo, Italy’s flagship pharmaceutical and chemicals exhibition. Their concerns include higher input and financing costs, limited production scale, gaps in R&D and technology, and the high cost of meeting regulatory requirements in developed markets.

Karnani said Deccan Nutraceuticals still depends remains about 20-30% dependent on China for for 20-30% of its raw materials and chemicals supplies. She further highlighted that the experience of competing with Chinese manufacturers had exposed a major gap in technology and process efficiency. She cited one product where the company sourced raw material from the Netherlands while Chinese manufacturers were using the same type of leaf to extract much higher quantities of active material. “If we take 10,000 kg of leaves and extract 5 kg of material, they, backed by their innovative processes, started extracting 25 kg from the same 10,000 kg,” she said.

The result was a sharp reduction in the end product's market price, making it difficult for the Indian company to compete.

For Karnani, the lesson goes beyond low-cost Chinese manufacturing. “We are lagging on price points, but of course, we are also lagging in innovation that enables Chinese firms to produce more cost-effective products,” she said, arguing that India still has a long way to go on industrial R&D spending.

Asked why a mid-sized Indian company may struggle to execute a $100 million order when a similarly sized Chinese company can take on such a contract, Karnani said winning the order itself would not necessarily be the biggest challenge for the Indian firm. The bigger constraints would be financing, sourcing and the production capacity required to fulfil it.

Chinese manufacturers, she said, benefit from greater economies of scale and a policy environment that enables mid-sized firms to build larger capacities, making it easier for them to take on large orders. For Indian companies caught in the “missing middle”, limited access to finance and the lack of scale can make the same jump more difficult, she added.

For many firms, the China+1 opportunity is not simply about replacing Chinese suppliers, but closing the capability gap. Indian manufacturers continue to face disadvantages in scale, technology and supply-chain depth, particularly in specialised molecules where China remains dominant.

Upadhyay of Sun Moon Pharmaceuticals Pvt Ltd, highlighted that some molecules are manufactured predominantly or exclusively in China.

“Despite being competitively challenged on many fronts across the pharma and chemical value chains, China is still a dominant force because there are many molecules that are manufactured only in China, not in India,” he said.

Regulatory hurdles limit global growth

Indian companies at CPHI Milan said they are receiving interest from overseas markets, but regulatory requirements can determine whether that interest turns into an actual order.

Sun Moon, which has moved from specialty chemical intermediates into API manufacturing, currently sees opportunities in markets including Egypt, Indonesia, Brazil, the Philippines, Malaysia and Turkey.

Europe, however, is more difficult to tap, according to the company. The company says entering European markets requires additional registrations, filings, audits and compliance with market-specific requirements.

Upadhyay said meeting European requirements can cost almost twice the company's existing expense base.

For a medium-sized company, that can become a major barrier, he said, stressing that government incentives are skewed more in favour of large and micro firms.

R&D becoming critical to compete with China

According to several companies, India's low labour costs alone are unlikely to be enough as Chinese manufacturers are increasingly competing through technology, process optimisation and economies of scale.

Karnani said Indian government support for industrial R&D needs to improve, including better utilisation of government laboratories and stronger links between industry and research institutions.

Sun Moon's Upadhyay also listed R&D and technology infrastructure among the areas where policy support could help MSMEs enhance their competitiveness.

The issue is particularly important because global customers are becoming more demanding on quality, sustainability and regulatory compliance.

Manoj Kasture, head of business development at Kalpsutra Chemicals Pvt Ltd, said Indian companies are capable of meeting international regulatory requirements, even though doing so is expensive. “Regulatory is very important, but it is very expensive to maintain compliance,” he said.

Kasture added that India should not try to replicate China's huge manufacturing capacity. “The capacity gap is too big,” he said, arguing that Indian companies should instead focus on overcoming their own industrial constraints and filling gaps in global supply chains.

Infrastructure adds to the pressure

For Mumbai based Hab Pharma Pvt Ltd, which is investing in two new plants including EU-GMP-compliant facilities, the biggest policy priority is not subsidies. Its Managing director Saurabh Agarwal said the company is looking to expand its business in Europe and other Western markets and has received strong interest at CPHI Milan.

But existing production timelines are currently stretched. At the same time, logistics costs have increased amid geopolitical disruptions, Agarwal said, adding that the disruptions around the Strait of Hormuz had affected freight rates and increased the cost of raw materials and packaging. A stronger dollar, however, had provided some relief to exporters by improving rupee realisation. His policy prescription is focused on the industrial infrastructure surrounding manufacturing. Ports and airports need to move shipments faster, while companies need better access to natural gas and effluent-treatment infrastructure, he said. “I am not looking for subsidies, but I am looking for better infrastructure,” Agarwal said.

Kasture added that customers pursuing a ‘China plus’ strategy are increasingly looking at India for practical reasons rather than just a trending sentiment. English-language capability, affordability and firms's accessibility are advantages, he added.

However, Sun Moon's Upadhyay maintained that global pharmaceutical companies were not yet moving away from Chinese suppliers to Indian MSMEs on a broad scale since existing registrations, supplier relationships and regulatory approvals remain key barriers.

For MSME exporters at CPHI Milan, the challenge is converting growing global interest into sustained business. The message from them is that global demand alone would not be enough. Their ability to scale production, meet international standards and fulfil orders at competitive costs will determine how much India gains from the China+1 shift.

The reporter attended CPHI Milan at the invitation of Anupam Rasayan.