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The API paradox of India’s pharmaceutical industry

• Pharmaceutical exports from India are estimated to be US$ 19.14 billion in 2018-19
• The industry imports around 85% of active pharmaceutical ingredients (APIs) from China.
• Most of the API production units in India run at 30-40% of their capacity as against a capacity utilisation of 70% in China.
• Domestic capacity needs to be enhanced to overcome the overwhelming dependence on API imports from China.


The success of the Indian pharma industry primarily rode on the twin pillars of expertise in reverse engineering and the Patents Act of 1970. The Act allowed for only process patents with regard to inventions relating to drugs, medicines, food and chemicals. Under a process patent, the patent is granted for a particular manufacturing process and not the product i.e. by modifying the process of production, one can get a similar product patented.

Till the time India signed TRIPs in 1998 as part of WTO agreement and agreed to grant product patents, the Indian pharmaceutical industry had gained a significant edge in the global market. Today India has emerged as the ‘Pharmacy of the global south’.

The pharmaceutical sector in India was valued at US$ 36.3 billion in 2018. Pharmaceutical exports from India were estimated at US$ 19.14 billion in 2018-19. India alone accounts for 20% of global generic medicinal exports in terms of volume. The important destinations for India’s pharmaceutical exports are US, UK, South Africa, Russia, Nigeria, Brazil and Germany.

However, there is a flip side to this success story. The Indian pharmaceutical industry has been heavily dependent on imported APIs. Almost all drugs are made up of two core components: the APIs i.e. activated pharmaceutical ingredients, which are the central ingredients providing the therapeutic effect; and the excipients, substances other than the drug that help deliver the medication. Excipients are chemically inactive substances while APIs are the active ingredients.

Overdependence of the Indian pharmaceutical industry on imported APIs primarily from China, US and Italy exposes it to raw material supply disruptions and pricing volatility. China’s recent crackdown on polluting industries, primarily pharmaceutical and chemical industries has led to a sudden hike in the prices of APIs imported from China by 25-30%, thereby reducing margins for the Indian drug makers.

Currently, the Indian pharmaceutical industry imports around 85% of APIs from China. The primary advantage that China offers is low cost of production.

However, a report on India-China trade released recently by the Ministry of Commerce and industry has claimed that the cost of production in India is highly competitive vis-à-vis China with a difference of only 3%, which can be attributed to labour cost. As per the report, the material, depreciation and indirect personnel cost remains the same in China as in India.

According to the report, dependence on Chinese imports is primarily because of huge built up capacities and significant bank support in the form of loans at negligible interest rates. These two factors have resulted in cost differential.

Another major issue is India’s liberal approach in approving registrations for Chinese products. While China take 3-4 years to approve Indian products, India takes a few months to approve similar Chinese products.

The biggest impediment that Indian drug manufacturers face is low capacity utilisation. While the drug manufacturing sector in India has an average utilisation rate of 75% and above, API production facilities have a lower rate.  Most of the API production units in India run at 30-40% of their capacity.  

The report further highlights that capacity utilisation of Chinese API plants is around 70%, as China has developed a system of efficient backward and forward linkage within the industrial estate.  It takes approximately one year to build the estate and produce raw material, whereas in India, it takes around three years or more to build estate/factory for raw materials.

Due to the ongoing supply disruption in China, Indian active pharmaceutical ingredients (APIs) and intermediates manufacturers have raised production in the short term and are anticipating sustained growth in demand. However, a sustainable and long-term solution to overdependence on Chinese APIs need to be devised.  

The government constituted the Katoch committee to make recommendations on reducing the dependence of Indian industry on imported APIs in 2015. Another task force, headed by Minister of State Mr. Mansukh L. Mandaviya was constituted in 2018 by the government to address the issue. Following the recommendations, the government plans to establish three bulk drug parks at Andhra Pradesh, Gujarat and Himachal Pradesh through the public private partnership (PPP) mode.

In the light of the Chinese policy of economic coercion and intermittent acrimonious disputes; India should remain vigilant. China has been notorious for using economic means to reach political ends. The magnitude of dependence of the Indian pharmaceutical industry is clearly not a healthy sign and needs to be corrected at the earliest.

In the short term, the government must provide assured purchase agreements for the existing API manufacturing plants in India based on demand mapping of pharmaceutical manufacturers in the country. This can help tackle the below par capacity utilisation of existing plants in India. The government may also absorb the price differential to boost capacity utilisation of Indian plants.

In long term, APIs that are in great demand and are imported in significant value such as poly vinyl chloride (HS Code – 390410), m-xylene (HS-290243), diammonium phosphate (HS code 310530) etc should be earmarked for substituting imports with domestic production.


  1. Reply

    PVC, m-Xylene and DAP – are these classified as APIs – if so where? India? I thought these were chemicals and APIs are different. APIs or Bulk Drugs with specific names classified under Chapter 29. Chapter 39 is Plastics and Chapter 31 fertilizer!

  2. Reply

    Indian industries can very well develop API production capacity in India. Only thing we expect from Govt. is protection from unhealthy competition from cheap imports from China. Govt. can very well import duties on local production.

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