India embarked upon an China’s dependence for crucial raw materials is reduced as the country seeks to be self-sufficient. “pharmacy of the world.”

Already, the world’s third-largest manufacturer of medicines by volume, India has one of the lowest manufacturing costs globally. About one in three pills consumed in the U.S. and one in four in the U.K. are made in India.

However, India’s $42 billion pharmaceutical sector is heavily dependent on China for key active pharmaceutical ingredients or API — chemicals that are responsible for the therapeutic effect of drugs. 

According to a government reportIndia purchases 68% of its APIs in China because it is cheaper than making them locally.

The Trade Promotion Council is a government-funded organization that estimates API dependence. on China at about 85%. Other independent studyThe report, which was done in 2021, found that India’s API imports are almost 70% from China and its dependency on China for certain life-saving antibiotics is 90%. The report stated that penicillin, azithromycin and cephalosporins are some of the drugs most dependent upon Chinese APIs.

This could be changing.

Two years ago, a scheme was created by the government. 35 APIs began to be produced at 32 plants across India in March. This is expected to reduce dependence on China by up to 35% before the end of the decade, according to an estimate by ratings firm ICRA Limited, the Indian affiliate of Moody’s.

The production linked incentive scheme was first launched in mid-2020, when military tensions with China were at a high. PLI is a program that encourages companies from all industries to increase domestic productivity. manufacturing by $520 billion by 2025.

For the pharma sector,  the government has earmarked over $2 billion worth of incentives for both private Indian companies and foreign players to start producing 53 APIs that India  relies heavily on China for. 

Participating in this scheme are some of India’s most important pharmaceutical companies. The scheme includes Sun Pharmaceutical Industries, Aurobindo Pharma, Dr. Reddy’s Laboratories, Lupin and Cipla. 

A total of 34 products were approved in the first phase of the scheme — distributed amongst 49 players, according to assistant vice president at ICRA Limited, Deepak Jotwani. 

“The first phase of the reduction will lead to imports from China being reduced by 25-35% between 2029 and 2029.” Jotwani is estimated. 

India’s involvement in the pandemic

The government hopes to drive the pharmaceutical sector — currently valued at roughly $42 billion — up to $65 billion by 2024. Its goal is to double that target to between $120 billion to $130 billion by 2030.

India has also emerged as a key player in worldwide efforts to combat the pandemic. 

India supplied 1.3 million units in 2016, according to government data. over 201 million doses to about 100 countries across Southeast Asia, South America, Europe, Africa and the Middle East as of May 9.

India has been exporting vaccines through both government-funded initiatives and under the Covax platform.

The country had to briefly stop exports in April 2021 when domestic cases surged and it needed more vaccines at home. It resumed exports in October that year.

Significantly, over 80% of the antiretroviral drugs used globally to combat AIDS are also supplied by Indian pharmaceutical firms, according to the government.

India was not always this dependent on China for essential ingredients for its drugs.

In 1991, India imported only 1% of its APIs from China, according to PWC consulting group.

That changed when China ramped up API manufacturing in the 1990sAll its 7,000 drug parks with infrastructure such as effluent treatment plants, subsidized power and water. Indian companies were forced out of the API market by falling production costs in China.

The long way to self-sufficiency

Amitendu Palit, senior researcher at the Institute of South Asian Studies, National University of Singapore, stated that it will take “long time” for local production to meet the demands of India’s drug producers.

India will have to continue imports of APIs significantly from China. Palit stated that India must reduce its dependence on imports to minimize disruptions in the pharma supply chain.

Mayur Sirdesai (founder of Somerset Indus Capital Partners in Mumbai), which manages a private equity firm in the health sector, stated that the focus on the incentive program with a production link could have been narrower. 

According to him, “we will likely do better with low volume by focusing more on niche APIs” and that many other chemical processes would need to be transferred to India for long-term cost savings. 

Geopolitical considerations were behind the decision to reduce dependence on China, said Pavan Choudhary, chairman and secretary general of the Medical Technology Association of India, a non-profit organization.

“Blind offshoring is now becoming ‘friendshoring,'” Choudhary said, explaining “friendshoring″ to mean the outsourcing of business operations to countries that have a similar political system, and with whom there is a “history of peace”.

Also, he was referring to recent efforts by several countries to diversify their supply chains from China.

Choudhury — an influential voice in shaping policy in the pharmaceutical industry — estimated that apart from APIs, India also imports $1.5 billion of medical equipment from China in imaging technology or machines to perform magnetic resonance imaging and other types of sophisticated scans.

According to him, reducing China’s dependence on medical equipment will take more time than it would for APIs.

“APIs depend upon a chemical environment which exists already in India,” said he, noting that the medical device industry was of greater “technological complexity”. 

He said, “It may take longer to reduce this dependence.”