U.S. TARIFF SHOCK: CAN INDIA'S PHARMA SECTOR TURN CRISIS INTO OPPORTUNITY?

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Picture Courtesy:  THE HINDU

Context

The U.S. imposed a 100% tariff on branded and patented pharmaceutical imports, effective October 1, 2025, to boost domestic manufacturing, impacting India, the "pharmacy of the world."

Indian Pharmaceutical Sector 

The industry is recognized as the third-largest globally by volume and 14th by value. (Source: PIB)

The domestic pharmaceutical market is currently about $60 billion and is expected to reach $130 billion by 2030, showing the sector's scale, depth, and innovation potential. (Source: PIB)

Pharmaceutical exports reached $30.47 billion in 2024–25, a 9.4% growth year-over-year, driven by a strong manufacturing base and expanding global reach. (Source: PIB)

Indian medicines are exported to over 200 global markets, with more than 60% going to stringent regulatory destinations.

The United States and Europe account for about 34% and 19% respectively of India’s pharmaceutical exports.

Key Strengths and Global Role

Pharmacy of the World: India provides 20% of the global supply of generic medicines by volume. 

Vaccine Leader: The country fulfills over 60% of the world’s vaccine demand, including supplies for WHO and UNICEF.

Manufacturing Hub: Outside the U.S., India hosts the most USFDA-compliant plants and supplies around 40% of U.S. generic drug demand.

Specialized Supply: Indian firms supply more than 80% of antiretroviral drugs used globally to treat AIDS.

Impact on U.S. Tariff on Indian Pharmaceutical Sector 

A tariff shock refers to a sudden and significant increase in import duties. For India, such a measure from its largest export market, the U.S., would pose several immediate challenges:

• Competitive Disadvantage: Increased tariffs would raise the cost of Indian generic drugs, making them less competitive against domestic U.S. products or imports from other nations.
• Erosion of Profit Margins: The Indian pharma industry, particularly the high-volume generic segment, operates on thin margins. Absorbing tariff costs would severely impact profitability.
• Supply Chain Disruptions: Established supply chains would be disrupted, necessitating costly and time-consuming recalibration.
• Investment Chill: Trade uncertainty could deter future investments in R&D and capacity expansion aimed at the U.S. market.

What are the challenges in Indian Pharmaceutical Sector?

Critical Supply Chain Vulnerabilities

• API Dependency on China: India remains heavily dependent on China for Active Pharmaceutical Ingredients (APIs), Key Starting Materials (KSMs), and drug intermediates. For many critical drugs, import reliance is as high as 70-80%.
• Geopolitical Risks: Concentration of supply exposes the sector to risks from geopolitical tensions and trade disruptions, as seen during the COVID-19 pandemic. 

Regulatory Scrutiny and Quality Assurance

• US FDA Compliance: Indian pharma, with the most US FDA-compliant facilities outside the US, faces increased scrutiny. Recent problems with data integrity, and manufacturing errors have resulted in import alerts and reputational harm.
• Global Reputation Issues: High-profile incidents involving contaminated Indian-made cough syrups have heightened international pressure to meet more stringent global quality standards. 

Innovation and R&D Hurdles

• Low R&D Spending: Indian pharmaceutical companies invest only about 5-7% of their revenue in R&D, compared to the 15-20% seen in developed markets.
• Over-reliance on Generics: The industry excels in low-cost generics, but rising competition is squeezing margins. Shifting to high-value products like biologics and specialty drugs demands high capital and expertise.

Pricing and Intellectual Property (IP) Conflicts 

• Price Controls: The Drug Price Control Order (DPCO) caps prices for essential medicines, which ensures affordability for patients but slash profitability for manufacturers and deter investment in new drug launches.
• IP Disputes: International companies criticize India’s use of Compulsory Licensing and Section 3(d) of the Patents Act, which prevents "evergreening" (extending patents on minor modifications), leading to legal and trade friction. 

Talent and Skill Gaps

• Digital Transformation: 43% of companies report difficulties in digital transformation due to a shortage of skilled labor proficient in AI-driven discovery and automation. (Source: PwC report)
• Workforce Optimization: There is a shortage of qualified personnel capable of managing complex biopharma manufacturing and regulatory affairs. 

Emerging Environmental and Operational Issues

• ESG and Sustainability: Companies are under pressure to adopt green manufacturing to manage waste—particularly biomedical waste—and reduce carbon emissions, as non-compliance can lead to fines and production halts.
• Fake and Counterfeit Drugs: The World Health Organization (WHO) estimates that up to 1 in 10 medical products in low- and middle-income countries are substandard or falsified, a challenge that India faces as both a source and victim.  

 Initiative Taken For Pharmaceutical Sector

Production Linked Incentive (PLI) Scheme

• Bulk Drugs PLI: Targets domestic production of 41 critical Key Starting Materials (KSMs) and Active Pharmaceutical Ingredients (APIs).  
• Pharmaceuticals PLI 2.0: Incentivizes the production of high-value goods, including biopharmaceuticals, complex generics, and orphan drugs.  
• Medical Devices PLI: Focuses on manufacturing high-end equipment like MRI machines and CT scans that were previously imported. 

Research and Innovation Support

• PRIP Scheme: The Promotion of Research and Innovation in Pharma-MedTech (PRIP) scheme designed to shift the industry from cost-based to innovation-based growth.
• Component A: Establishing Centres of Excellence (CoEs) at all seven National Institutes of Pharmaceutical Education and Research (NIPERs).
• Component B: Providing milestone-based financial assistance to private companies and startups for high-priority R&D areas like gene therapy and precision medicine.
• Pharma Vision 2020-2047: A long-term roadmap aims to evolve India into the "Laboratory of the World".

 Infrastructure Development

• Bulk Drug Parks: Government approved three major Bulk Drug Parks in Gujarat (Bharuch), Himachal Pradesh (Una), and Andhra Pradesh (East Godavari) to boost domestic Active Pharmaceutical Ingredient (API) production.
• Medical Device Parks: Financial grants are being provided to states to develop specialized infrastructure for medical technology manufacturing. 

Regulatory and Quality Reforms

• Mandatory GMP Standards: Starting January 1, 2026, revised Good Manufacturing Practices (GMP)—aligned with WHO standards—became mandatory for small pharmaceutical companies (turnover <₹250 crore) to improve global quality compliance.
• RPTUAS Scheme: The Revamped Pharmaceutical Technology Upgradation Assistance Scheme provides subsidies and loans to help MSMEs upgrade their facilities to meet these new standards. 

Way Forward

Transitioning from "Volume to Value"

• Specialty and Complex Generics: Companies are moving beyond simple pills to high-entry-barrier products like complex injectables, biosimilars, and inhalers to counter price erosion in standard generics.
• Innovation in New Modalities: Increasing R&D focus on next-generation therapies, including Cell and Gene Therapy (CGT), mRNA vaccines, and orphan drugs for rare diseases. 

Diversification of Export Markets

• Emerging Markets: Regions like Africa, Latin America, and Southeast Asia offer immense potential due to rising healthcare spending and demand for affordable generics.  
• Regulated Markets (Beyond U.S.): Deepening presence in the European Union, Japan, and Australia with high-value generics and biosimilars is a key strategy.

Achieving Self-Reliance

• Promote Innovation: Strengthen R&D for novel drugs, biologics, and biosimilars. Collaborations between industry and academia to build an innovation ecosystem.  
• Adopting Advanced Technologies: Integrating AI, machine learning, and blockchain in R&D, manufacturing, and supply chain management to enhance efficiency and quality (Source: PIB).

Sustainability and ESG Focus

• Green Chemistry: Adopting sustainable manufacturing practices like flow chemistry and continuous processing to reduce environmental impact and meet the increasingly stringent ESG requirements of global buyers.
• Net Zero Vision: Major firms are aligning their operations with a net-zero vision, integrating decarbonization into their supply chain and manufacturing processes. 

Talent & Collaborative Ecosystems

• Industry-Academia Linkage: Modernizing curricula to include AI/ML and bioinformatics, and creating specialized talent pools through Global Capability Centers (GCCs) that now support 40% of the global pharma GCC workforce.
• CRDMO Expansion: Leveraging the "China+1" sentiment to grow the Contract Research, Development, and Manufacturing Organization (CRDMO) market, making India a preferred partner for global pharmaceutical R&D. 

Conclusion

Market diversification, innovation, and API self-reliance, backed by PLI schemes, will help the Indian pharma sector mitigate U.S. tariff risks and strengthen its role as a resilient global healthcare partner.

Source: THE HINDU