.png)
Indian Pharma Industry's Dependency on China and its Impact on Exports
Optimize your business: use unlimited savings with Pazago fulfilled now!
Get Started ->India has earned its title as the "pharmacy of the world" by supplying over 20% of global generic medicines. It's a vital player in the pharmaceutical trade, both in volume and reach. Yet, this booming industry faces a critical challenge—it heavily depends on China for essential raw materials such as Active Pharmaceutical Ingredients (APIs) and Key Starting Materials (KSMs). At the same time, Indian pharma exports to China have been growing, highlighting the complex interdependence between the two nations in the pharmaceutical sector.
This reliance on one primary supplier raises important questions about India's pharmaceutical exports, supply chain stability, and overall self-reliance. If you're an importer or exporter in this industry, understanding these dependencies and their ripple effects is crucial for staying competitive and informed. Let's break this down step by step.
The Extent of Dependency
India's pharmaceutical industry relies on imported APIs to produce the finished drugs exported worldwide. And 70% of these APIs are imported from China. To put this into perspective, India spent $3.18 billion on importing APIs from China in fiscal year 2022–23, an increase of nearly 2% from the previous year. This dependency also impacts Indian pharma exports to China, as a stable API supply is crucial for maintaining production levels.
Some categories are particularly concerning. Essential antibiotics like penicillin, azithromycin, and cephalosporins depend on imports from China for over 90% of their requirements. Without a steady supply of these materials, the production of many critical medicines could stop.
Why is China the go-to supplier?
China's cost-efficient production, strong infrastructure, and government subsidies make it an attractive source for Indian manufacturers. However, setting up equivalent manufacturing facilities in India has historically faced limitations such as high costs, regulatory delays, and infrastructure gaps.
But how does this reliance impact India's pharmaceutical exports? Let's take a closer look.
Also Read: India's Top Export Destinations and Trading Partners
Impacts on India's Exports
India's dependence on China for APIs has far-reaching implications for its pharmaceutical exports. While India dominates the global market for generic medicines, this reliance introduces vulnerabilities that can disrupt production and trade.
- Supply Chain Vulnerabilities
India's pharmaceutical supply chain has faced significant stress during global crises. For instance, during the COVID-19 pandemic, API supply disruptions from China caused medicine production delays. Geopolitical tensions, including trade restrictions or sanctions, further threaten the steady flow of raw materials. These interruptions can directly impact India's ability to fulfill export orders on time, damaging trust among global buyers.
- Rising Costs and Price Volatility
The concentration of API manufacturing in China gives it significant pricing power. Indian manufacturers have faced instances where API prices rose, particularly during supply disruptions. Higher raw material costs cut profit margins and make Indian exports less competitive globally. Importers and exporters are forced to deal with fluctuating costs, making it harder to plan production and pricing strategies.
- Export Competitiveness and Dependency Risks
India's heavy reliance on Chinese imports limits its ability to shift quickly in response to supply chain disruptions. It also exposes the industry to dependency risks, as a single supplier has an outsized influence on production dynamics. Countries looking to diversify their medicine suppliers might view this dependency as a potential drawback, affecting the global perception of India's pharmaceutical sector.
- Global Reputation and Trust
Export customers expect consistency in quality, quantity, and timelines. Any delay caused by API shortages can spoil India's reputation as a reliable supplier. In competitive global markets, trust is critical, and even minor disruptions can lead to long-term consequences.
So, how can India reduce these risks and secure its pharmaceutical dominance? Let's look at the next steps.
Also Read: List Of Profitable & Best Products To Export From India
The Road Ahead: Strategies for Long-Term Resilience
India's journey toward lowering its dependency on China for APIs isn't just about addressing current vulnerabilities but positioning itself for sustained growth and global leadership in pharmaceuticals. Here's what the future focus should be:
- Innovation-Driven API Manufacturing
India needs to prioritize creating cost-effective, scalable processes for producing high-demand APIs. For instance, investing in green chemistry and alternative synthesis methods can reduce costs and environmental impact, making Indian products more competitive globally.
- Creating a Reliable Domestic Ecosystem
It's critical to establish an uninterrupted supply chain for Key Starting Materials (KSMs) and APIs. Building a network of small—and medium-scale suppliers within India will ensure consistent raw material availability and be less prone to disruptions.
- Competing Beyond Cost Advantage
India must shift from competing solely on price to offering higher quality, innovation, and sustainability. More and more global buyers prefer suppliers who prioritize ethical practices and environmental responsibility.
- Learning from Global Benchmarks
Countries like the U.S. and South Korea are also investing heavily in reducing reliance on imports. India can take inspiration from their approach by promoting partnerships between academia and industry to drive innovation forward.
- Promoting Industry-Academia Collaboration
Encouraging partnerships between research institutions and pharmaceutical companies can result in breakthrough innovations. These collaborations can address gaps in API production and create more self-sustaining models.
- Exploring Strategic Reserves
Creating strategic reserves for APIs and essential raw materials could be a significant advantage during disruptions. Such reserves would cushion the industry during crises, ensuring production continuity and export stability.
- Strengthening Export Agreements
Establishing long-term export agreements with importing countries can build consistent demand for Indian pharmaceuticals. Partnering with governments in Africa, Latin America, and Southeast Asia will improve trust and market penetration.
Some of these strategies are already underway, backed by government initiatives to reshape the industry.
Also Read: Understanding Incoterms in International Trade
Government Initiatives to Address the Issue
Recognizing the risks posed by over-reliance on China for APIs, the Indian government has introduced several initiatives to strengthen domestic capabilities. These measures aim to reduce dependency, enhance self-reliance, and secure the country's position as a leading pharmaceutical exporter.
- Production Linked Incentive (PLI) Scheme
The PLI scheme is a key element of the government's strategy, launched to boost domestic production of 53 critical APIs. The initiative offers financial incentives to manufacturers who set up facilities in India. The goal is to make domestic API production cost-competitive with imports from China.
Key highlights of the PLI scheme:
- Focus on APIs that are heavily imported, such as antibiotics, vitamins, and hormones.
- Financial incentives worth ₹6,940 crore allocated to encourage domestic manufacturing.
- Expected to reduce API imports by 25–30% within the next five years.
- Establishment of Bulk Drug Parks
The government is setting up three bulk drug parks in Himachal Pradesh, Gujarat, and Andhra Pradesh. These parks aim to provide state-of-the-art infrastructure for API manufacturing, including common facilities like effluent treatment plants, power supply, and logistics support.
Advantages of bulk drug parks:
- Reduced production costs due to shared infrastructure.
- Increased capacity for API production to meet domestic and export demands.
- Enhanced ability to compete with Chinese manufacturers in terms of cost and efficiency.
- Tax Incentives and Import Duty Reductions
The government has also introduced tax benefits for manufacturers of life-saving drugs to encourage API production. Import duties on essential equipment and raw materials used in API manufacturing have been reduced, making it easier for local manufacturers to scale up production.
- Research and Development (R&D) Investments
The Indian government is partnering with the private sector to enhance R&D capabilities in API production. Focused research on new synthesis methods and cost-efficient production techniques is encouraged to ensure that Indian manufacturers can compete with Chinese counterparts.
These initiatives don't just benefit manufacturers—they also open new doors for importers and exporters.
Also Read: Meaning and Objectives of EXIM Policy in Export Trade
Opportunities for Importers and Exporters
India's efforts to reduce its reliance on Chinese APIs open new opportunities for both importers and exporters. These changes, driven by government policies and private sector innovation, are reshaping the pharmaceutical supply chain and presenting avenues for growth.
- Diversifying API Suppliers
India's push toward domestic API production is a major shift for importers. Previously, they relied on a single source: China. Now, they have the chance to build relationships with emerging Indian API manufacturers. This diversification reduces risks associated with supply chain disruptions and creates long-term stability.
Opportunities for importers:
- Partner with Indian API manufacturers under the PLI scheme.
- Explore emerging suppliers in countries like South Korea, Vietnam, and Taiwan, where API production is also gaining traction.
- Boosting Export Potential
Increased domestic production of APIs will significantly benefit exporters. Reduced dependency on Chinese imports means fewer production delays, stable pricing, and enhanced competitiveness in global markets. With bulk drug parks and infrastructure support, Indian exporters can simplify operations and offer consistent supplies to their customers. This shift is also expected to strengthen Indian pharma exports to China, opening new opportunities for growth and reducing trade imbalances.
Advantages for exporters:
- Greater control over supply chains due to local API sourcing.
- Improved profit margins as domestic API prices stabilize over time.
- Enhanced reputation as a reliable supplier in global markets.
- Expanding to New Markets
India's growing focus on self-reliance aligns with the global demand for alternative pharmaceutical suppliers. Many countries looking to cut back on their reliance on China for medicines and APIs are turning to India as a trusted alternative. Exporters can capitalize on this shift by expanding into new markets across Africa, Southeast Asia, and South America.
- Collaborations and Joint Ventures
As the government invests in R&D and infrastructure, opportunities for partnerships between Indian and international firms are growing. Importers can collaborate with Indian manufacturers to co-develop APIs, while exporters can form joint ventures to penetrate new markets.
- Supporting Allied Industries
The ripple effect of increased API manufacturing also benefits allied industries in areas like packaging, logistics, and quality control. Importers and exporters involved in these sectors can tap into the growing demand for their services.
- Sustainable Practices as a Selling Point
Global buyers increasingly favor suppliers with sustainable practices. Indian manufacturers adopting eco-friendly production techniques in bulk drug parks can position themselves as premium suppliers, creating a niche for environmentally conscious exports.
To fully capitalize on these opportunities, having the right tools and support is essential—this is where Pazago helps.
Also Read: Inclusive Aspects of Foreign Trade Policy 2023
How Pazago Supports Pharma Importers and Exporters
Pazago simplifies and strengthens operations for importers and exporters in the pharmaceutical sector by addressing critical pain points:
- Cost-Effective Logistics: Partner with reliable carriers offering competitive rates to minimize expenses and ensure timely deliveries.
- Secure Transactions: Manage currency fluctuations for safe, efficient cross-border payments.
- Quality Assurance: Evaluate vendors and access inspection reports to maintain consistent product quality.
- Manage Documentation: Store and retrieve trade documents securely for hassle-free operations.
- Flexible Credit: Access collateral-free loans at low interest rates to support business growth.
- Shipment Tracking: Monitor shipments across 180+ carriers to meet delivery timelines.
- Unified Communication: Consolidate communication with suppliers, buyers, and carriers for smooth coordination.
With Pazago, you can optimize operations, improve supply chain efficiency, and build resilience in a competitive pharmaceutical market.
Conclusion
India's pharmaceutical industry has immense potential to strengthen its global position, but reducing reliance on Chinese APIs is crucial for sustainable growth. India can secure its role as a reliable supplier by focusing on local API production, enhancing quality, and diversifying raw material sources. Interestingly, opportunities also lie in Indian pharma exports to China as demand for high-quality generics grows worldwide.
To simplify your operations and overcome trade challenges, partner with Pazago. Optimize logistics, secure payments, and manage documentation with ease—your dependable ally in the global pharma trade. Get started with Pazago today!
