Active Pharmaceutical Ingredients (APIs) are essential for the manufacture of various drugs. The Indian pharma industry is heavily reliant on imports for APIs and more than 2/3rd of the API imports are from China. A status report by a government body has called for urgent policy & other measures to become self-reliant in APIs & other raw materials in the wake of changed global norms.
COVID-19 highlighted the dependence of major economies, including India and the US, on China for many products including pharma. The growing geopolitical tensions between India and China has resulted in the Indian government banning certain Chinese apps. The government has also tightened FDI norms for investments from China.
Even as things remain tense between the two neighbours, India’s pharmaceutical industry relies heavily on import of Active Pharmaceutical Ingredients (APIs) and imports from China make up for almost two-thirds of it. Noting this, the Technology Information Forecasting and Assessment Council (TIFAC) which is an autonomous organization under the Department of Science & Technology released a report on API which calls for scaling up the production of API in India in order to make India self-reliant in API production and reduce import dependence, especially from China.
API is required for the manufacture of drugs
Active Pharmaceutical Ingredients, abbreviated as API, are chemical compounds which are used to manufacture medicinal drugs and cause pharmacological activity or give direct effect in diagnosis, cure, or treatment of disease. Aspirin or Acetysalicylic Acid is the API used in tablets such as Ecosprin, Disprin, and Delisprin sold in India that used to prevent blood clot. Similarly, Acetaminophen or paracetamol is the API in Panadol, Dolo, and Crocin. APIs is therefore required for the production of drugs for many kinds of illnesses like flu, aches, diabetes, cancer, AIDS, malaria, infections.
India’s pharmaceutical is among the largest in the world
In terms of volume, India’s pharmaceutical industry is the third largest in the world, behind China and Italy while in terms of value, it is the fourteenth largest in the world. India Pharma industry has around 3,000 drug companies and about 10,500 manufacturing units, states the TIFAC report. In 2019, India’s domestic turnover reached Rs. 1.4 Lakh crore (equivalent to USD 20.03 billion) with exports to more than 200 countries worldwide. Import of APIs has increased in substantially because of cheaper import options from countries like China. Manufacturing of certain APIs has almost stopped in India.
India’s dependence on China for API has increased drastically post globalization
Before 1991, India was dependent on China for only 0.3% of its API requirement as per the TIFAC report. Following globalization, because of lower production cost due to mega manufacturing facilities in China, Indian companies began shifting to API imports from China. Final drugs are produced by Indian pharma companies for the domestic market and exports. Major destinations of India’s produce are USA, UK, South Africa, Russia, and Brazil.
Of the total import of API and intermediates worth Rs. 249 billion in 2019, around Rs.169 billion, amounting to 68%, was from China alone. In 2019-20, according to a Lok Sabha response, more than 87% of India’s API imports were from 10 countries alone. After China, USA had the second highest share with 3.53% followed by Italy with 3.02%. In 2016-17, China’s share was 66.69% which increased to 68.04% by 2019-20.
India depends fully on China for 19 APIs-Aspirin, Chloroquine, and Ranitidine, to name a few. Paracetamol, Vitamins C, B6, B1, B12, Ibuprofen, and Erythromycin are a few other APIs for which India depends on China for more than 63% of its requirements. Majority of these APIs are used for production of antibiotics.
China’s pharmaceutical industry has gone up from 9th position in 2007 to 2nd in 2019.
The pharmaceutical market in China has grown rapidly in the past few years. In 2007, China had the ninth largest market. Now, China’s market is the second largest globally, next to only the US. It is predicted that China will soon overtake US also to gain the number one position. The Chinese pharmaceutical industry mainly produces basic chemicals and APIs. China is the global leader in production and export of APIs contributing to one-fifth of the global API output by volume. China’s production capacity is above 2 million tons per annum.
The major reason behind China’s ability to capture the global API market is the cheap and cost-effective production of APIs resulting out of the large-scale manufacturing. If India were to produce these APIs, the cost incurred would be 20% more than that of China. The infrastructure in China is also highly favourable for the producers. The average size of a SEZ in China is 10 to 15 times bigger than India’s. Land is subsidized with common waste treatment and utilities which help reduce the physical infrastructure cost to an extent.
Besides, financial support in India is also a concern. It is difficult to get financial support due to the banking practices and time-consuming processes. A study pointed out that the cost of finance in China was 5% to 7% as compared to 11% to 14% in India. The profit margin for Finished Pharmaceutical Products (FPPs) is higher than that for APIs because of which Indian pharma industry is concentrating on FPPs. Due to this, China has also started giving more prominence to FPPs of late.
India is dependent on China even for raw materials, chemicals, and solvents required for producing API
The raw materials required for production of APIs like solvents to be used, chemicals such as catalysts, surfactants, reaction promoters, etc. are also being imported by India. In fact, 60% of solvents, and chemicals being imported by India are from China. India’s overdependence on imports has made the industry vulnerable to price fluctuation and supply disruptions. For instance, when China clamped down on polluting industries earlier, there was a sudden increase in the price of APIs by 25 to 30%, reducing the margins for Indian drug makers. The production and export of APIs took a hit because of the pandemic in China which also impacted the industry in India.
Considering the importance of pharmaceuticals, it is not prudent to be dependent on another country for such a large share of requirements. India’s National Security Advisor Ajit Doval had pointed out earlier that this can be a national security threat. For instance, a halt in production of APIs in China would have resulted in an acute shortage of drugs in India in the middle of a pandemic. India must focus on increasing the scale of manufacturing, to make manufacturing economically viable. Indigenous production of raw materials must also be encouraged. However, environmental clearances for the sector are difficult since the pharmaceutical industry is listed among the most polluting industries in India. Improved & common waste treatment facilities that conform to the stipulated norms are the need of the hour.
US and Japan are also highly dependent on China for API
Not just India, but the USA, Japan, South Korea, and Germany are among the top importers of APIs from China as of 2018 in terms of value. Netherland, Brazil, Italy, Spain, and Indonesia are also among the top ten importers of APIs from China. US imports 80% of the APIs required and China is the largest source. According to the FDA, in 2018, China was the second-largest exporter of drugs and biologics to the US, after Canada. Even the USA has taken measures to reduce its dependence on China for pharmaceutical requirements and is pushing for the purchase of American-made products.
The Indian government has been trying many different policy initiatives to support pharmaceutical industries for many years now. A committee was set up under V M Katoch in 2013 to study the issue during the UPA’s tenure. The year 2015 was declared the ‘Year of API’ to boost API manufacturing in India. Later in 2017, a draft Pharmaceutical Policy was prepared with the objective to provide guidance and nurture the pharmaceutical industry of India to regulate production and marketing of pharmaceutical products in India. However, there has not been much progress with the draft. A task force was also set in 2018 to revive API sector.
Two Schemes have been announced under Atmanirbhar Bharat for reviving the API sector
The Indian government is currently advocating for Atmanirbhar Bharat or self-sufficient India to revive the economy post the economic slowdown caused by COVID-19. A package to revive the API industry in the country has been announced as a part of the scheme.
Two schemes- Production Linked Incentive (PLI) Scheme for promotion of domestic manufacturing of critical Key Starting Materials (KSMs)/ Drug Intermediates (DIs) & Active Pharmaceutical Ingredients (APIs) and Promotion of Bulk Drug Parks were rolled out by the government in July this year. Under promotion of Bulk Drug Parks scheme, State implementing agencies which create common infrastructure facilities will be given financial assistance. Three Bulk Drug parks will be financed under the scheme. States will be selected based on scores obtained by the proposals submitted by the states on a predefined selection criterion as mentioned in the guidelines. It remains to be seen if these new policy measures result in decreased dependence on China for APIs and other raw materials.
Featured Image: Active Pharmaceutical Ingredients
