“If the Coronavirus situation prolongs, API supplies will begin drying up”

Dr. Sakthivel Selvaraj, Director, Health Economics, Financing and Policy at Public Health Foundation of India (PHFI), tells Trade Promotion Council of India that wisdom lies in enhancing domestic production &  presence of PSEs in order to shun India’s dependence on imported APIs.

In the short run though, the industry can augment domestic production or look for alternate markets to import APIs in order to deal with the twin challenges of supply disruption & price volatility in the domestic market to grapple with the effect of Coronavirus on the pharma industry.

TPCI: What are the current disruptions that the pharma sector is facing in trade with China due to Coronavirus?

Dr. Sakthivel Selvaraj (SS): The rapid spread of coronavirus (Covid-19) in China, and its consequent lockdown in Wuhan (capital of Hubei, the epicentre of the virus) along with disruption in two neighbouring provinces is a cause of concern, since these three provinces account for a large share of API imports from China to India. The impact of these disruptions will be felt in an acute manner, especially on antibiotics and vitamins production in India, since a large proportion of these formulations are produced by sourcing imports of intermediaries from China.

India imported nearly 50,000 APIs from around the world, with nearly 64% sourced from China alone. The disruption in shipments from Hubei and other 2 provinces has delayed shipment arrivals into India. Currently, as per media reports, Indian formulators have supplies of intermediaries to the extent of 2-3 months. If this situation prolongs, API supplies will begin drying up leading to production stoppage. Prices of key finished medicines are likely to accelerate. Some traders who have been importing these APIs have already announced their intention to hike prices of API, which is strongly likely to influence final medicine prices.

TPCI: What back up does India have if we face a severe shortage of supply and the situation persists?

SS: The Indian formulators have two options if the situation persists. One of the immediate actions will be ramping up domestic production of APIs, as currently only 40% of capacities are being utilised. The other option is to raise import of APIs from other countries, but are likely to more expensive. Subsequently, our exports of formulations amounting to Rs 110,000 crores are expected to be hit hard, with over 200 countries bearing the brunt of supply disruption.

TPCI: How can policy makers and industry be better prepared for this?

SS: Policy makers need to recognise the importance of self-reliance in API production, which used to be the case until the early 1990s, but we lost out to China subsequently. There is an urgent need to augment infrastructure, provide fiscal incentives by way of tax holidays and tax concessions and non-fiscal incentives including subsidised electricity, water, and other supplies for API production. But this is likely to take time since infrastructure augmentation will take its own time to come up. But a more strategic step would be to revive public sector drug manufacturers and augment their capacity to produce API and formulations. This is critical because if we continue to place emphasis on market, it will remain committed to profit and turnover, exposing India’s continued reliance on China, while such threats will remain a permanent feature of India’s health insecurity.

TPCI: Has the Indian healthcare system faced such a scenario of shortage of critical drugs in the past? What are the contingency measures that India has in place and how can they be made better?

SS: Such a crisis developed during the Beijing Olympics, when chemical industries were ordered to shut out during the event, the crisis came up during the SARS epidemic (but Hubei and other provinces producing APIs in China were not significantly affected then). But the import intensity of APIs from China has significantly accelerated since then, intensifying the reliance on China in the recent past and making it far more vulnerable now.

TPCI: What should India do given this increased dependence?

SS: Two things can be done in this situation. The first option is to provide more incentives and adequate infrastructural facilities to the country’s domestic manufacturers so as to boost the production of APIs. Secondly, we need to develop and augment the capacity of Indian PSUs in this sector. Earlier, Indian PSUs used to play a key role in this industry; however, due to the lack of infusion of sufficient funds. Indian PSUs have died. We need to revive them since they are the future of Indian pharmaceutical industry. This is a strategic sector since such a situation could also happen in the future and therefore, it cannot be left solely to the market for development.

Dr. Sakthivel Selvaraj is a renowned health economist who is currently engaged in teaching and research in the areas of healthcare financing, pharmaceutical economics and equity in healthcare financing and delivery in India. Earlier, he was associated with the National Commission on Macroeconomics and Health (NCMH), Ministry of Health and Family Welfare, New Delhi, during 2004-05. Dr. Sakthivel also served as a Consultant to the National Commission on Enterprises in the Unorganised Sector in India and as a Fellow at the Institute for Human Development (2005-06). Prior to this, he was a Research Associate in the Institute of Economic Growth (2002-04).

Dr. Sakhtivel was a Takemi Fellow (Post-Doctoral Fellow at Harvard School of Public Health, Boston, US) and a Fulbright Scholar during 2006-07. He has a Ph.D. in Health Economics (1996-2001) from Jawaharlal Nehru University, New Delhi.