India must fill China’s gaps to become the “pharmacy of the world”

India has emerged as a major supplier of Covid-19 vaccines, supplying 75 countries, including Indonesia, where a medical officer injects the AstraZeneca vaccine into a recipient on Bintan Island on July 2, 2021.

(Photo credit Yuli Seperi / Sijori images / Future Publishing via Getty Images

India has embarked on a ambitious plan to reduce dependence on China for key commodities as it seeks to become self-sufficient in its quest to be the “pharmacy of the world”.

Already of the world third largest producer of medicines by volume, India has one of the lowest production costs in the world. Of one in three pills consumed in the United States and one in four in the United Kingdom is produced in India.

However, India’s $ 42 billion pharmaceutical sector is heavily reliant on China for major active pharmaceutical ingredients or APIs, chemicals responsible for the therapeutic effect of drugs.

According to a government reportIndia imports around 68% of its bees from China as it is a cheaper option than domestic production.

However, an estimate by the Trade Promotion Council, a government-supported organization, places the API figure in dependence on China about 85%. Another independent study carried out in 2021 points out that while India’s API imports from China are nearly 70%, its reliance on China for “some life-saving antibiotics” is around 90%. Some drugs heavily reliant on Chinese bees include penicillin, cephalosporins, and azithromycin, the report said.

This may start to change.

As part of a government program launched two years ago, 35 API began being manufactured in 32 factories across India in March. This is expected to reduce dependence on China by up to 35% by the end of the decade, according to an estimate by rating firm ICRA Limited, the Indian subsidiary of Moody’s.

the incentive scheme linked to production it was first launched in mid-2020, when military tensions with China were at their peak. The PLI program aims to incentivize companies from all sectors to boost the internal market production of $ 520 billion by 2025.

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

Some of India’s largest pharmaceutical companies are involved in the program. They include Sun Pharmaceutical Industries, Aurobindo Pharma, dott Reddy’s laboratories, lupine Other Cipla.

A total of 34 products were approved in the first phase of the program and distributed among 49 players, according to assistant vice president of ICRA Limited, Deepak Jotwani.

“The first phase will result in a reduction of imports from China of around 25-35% by 2029”, Jotwani estimated.

India’s role in the pandemic

The government hopes to lead the pharmaceutical sector, which is currently valued at about $ 42 billion – up to $ 65 billion by 2024. Its goal is to double that target between $ 120 billion and $ 130 billion by 2030.

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

According to the government, India has provided over 201 million doses in approximately 100 countries through Southeast Asia, South America, Europe, Africa and the Middle East starting May 9th.

India exports vaccines both through government-funded initiatives and under the Covax platform.

The country had to briefly stop exports in April 2021 as domestic cases increased and it needed more vaccines at home. It resumed exports in October of the same year.

Significantly, according to the government, more than 80% of the antiretroviral drugs used globally to fight AIDS are also supplied by Indian pharmaceutical companies.

India has not always been so dependent on China for the essential ingredients for its drugs.

Reducing dependence on imports is important to reduce disruptions in the Indian pharmaceutical supply chain.

Amitendu Palit

senior researcher, Institute of South Asian Studies in NUS

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

That changed when China stepped up API production in the 1990s in its 7,000 pharmaceutical parks with infrastructure such as effluent treatment plants, subsidized electricity and water. Manufacturing costs in China have dropped dramatically and prompted Indian companies to exit the API market.

Long road to self-sufficiency

It will take “a long time” for local production to grow large enough to meet demand from Indian pharmaceutical manufacturers, said Amitendu Palit to CNBC, senior researcher at the Institute of South Asian Studies at the National University of Singapore.

“Until then, India will have to substantially import APIs from China. Reducing dependency on imports is important to reduce disruptions in the Indian pharmaceutical supply chain,” Palit said.

The founder of Mumbai-based Somerset Indus Capital Partners, which manages a private equity fund in the healthcare sector, Mayur Sirdesai, said the focus of the production-related incentive program could be narrower.

“We will probably do better with low-volume, focusing on niche APIs rather than high-volume ones,” he said, adding that many other chemical processes in the production cycle should also be moved to India to reduce costs in the long run.

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

“Blind offshoring is becoming ‘friendshoring’,” said Choudhary, explaining that “friendshoring” means the outsourcing of business operations to countries that have a similar political system and with which there is a “history of peace”.

Furthermore, India reflected recent attempts by several countries to diversify supply chains away from China.

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

He said reducing reliance on China for medical equipment would take longer than for APIs.

“APIs depend on a chemical ecosystem that already exists in India,” he said, adding that there was more “technological complexity” in medical devices.

“It will take a little longer to reduce this addiction,” he said.