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India - The Rising Pharma Giant

As per The Indian Brand Equity Foundation (IBEF), India is not just one of the largest but THE LARGEST provider of generic drugs to the world. The country also ranks 3rd and 14th with respect to its pharmaceutical production by volume and by value respectively. The pharmaceutical sector accounts for more than 50% of the global demand’s supply for various vaccines, 40% of the demand for generic drugs in the US, and 25% of all the medicines in the UK. The Indian pharma exports touched US$ 16.28 billion in FY20.

Evolution of the Indian Pharma Industry

  1. Until 1970, foreign companies dominated the Indian market and the patent regime was based on the Indian Patents and Design Act, 1911. It focused on both – the product and the process patents.
  2. In 1970, a new Patents Act – the Government’s Patents Act 1970 was established. It recommended quite a few amends to the 1911 Act. The New Act focused on the process and not the product. This encouraged the fewer domestic companies to re-engineer the manufacturing process without having to pay any royalties to the original patent holders. And this is what paved the way for a huge change in the Indian pharmaceutical scenario.
  3. In 1979, the Drug Price Control Order capped an overall profit margin for domestic pharma companies.
  4. The country saw a huge growth in the number of domestic pharmaceutical companies – from 2,000 to 24,000 between 1970 to 1995.
  5. In 1991, with the economic liberalization of India, there was a boom in the generic drugs industry which was further enhanced by the domestic pharma companies penetrating the global market.
  6. In 2005, The Patents (Amendment) Act, went back to focusing on the product patents but not the process.
  7. Now, the Indian Pharma companies struggled to manufacture generic copies of drugs. But what it did was, encourage the foreign pharma companies to return to India.
  8. This prompted a huge shift in the pharmaceutical industry in India. Scientists and pharma companies started investing hugely in research & development to develop their own drugs and get them patented. While many others opted to get into joint ventures with foreign pharma companies.

Thus, started the story of globalization of the Indian pharma industry.

Rising Demands of the Middle-Class Population

The rising income margins of the middle class have led to a drastic change in lifestyle choices and consequent awareness about health and fitness.
The increasing potential of the middle-class population that forms the majority of the global population in terms of greater disposable income has pushed the expenditure on healthcare and healthcare insurance facilities. The average spend on healthcare is expected to triple over the next few years. With the soaring demands, it stands to reason that the world will turn towards more affordable and faster options to make the drugs easily available to the end consumers. This is where India has stepped up its potential and already set the ground for easy market access for global pharmaceuticals demands.

India’s Advantages

The domestic pharmaceutical industry comprises a network of approx. 10,500 manufacturing units and 3,000 drug companies. India enjoys an important position in the global pharmaceutical sector due to its large talent pool of engineers, scientists, and visionary pharma leaders who understand the country’s potential and are at the helm of the pharmaceutical industry. It is noteworthy that, globally, over 80% of the antiretroviral drugs used to combat AIDS (Acquired Immune Deficiency Syndrome) are supplemented by Indian pharmaceutical firms. Another aspect of India that makes it the most preferred global pharmaceutical industry is the country’s progressive capabilities in contract manufacturing, research & development, and clinical trials. The Indian pharmaceutical market is perfect for investors as the cost of manufacturing in India is approximately 33 percent lower than that of the US. The current Indian pharmaceutical market segmentations looks like this:

  1. Drug formulation manufacturers
  2. Active pharmaceutical ingredients (API)
  3. Medical research and clinical trials
  4. Contract Manufacturers
  5. Biotechnology companies that comprise biopharmaceuticals, bio-agriculture, bio-industry, bio-services, and bioinformatics.

Government Initiatives and Trade Policies

  1. A collaborative boost provided by the government’s initiatives such as Make in India, National Digital Health Mission, Ayushman Bharat Scheme, etc. has pushed India as a leading global capital market. By 2030, the total market size of the Indian pharma industry is expected to reach US$130 billion. (ExpressPharma)
  2. The Union Cabinet has given its nod for the amendment of existing Foreign Direct Investment (FDI) policy in the pharmaceutical sector to allow FDI up to 100% under the automatic route for manufacturing of medical devices subject to certain conditions. (IBEF)
  3. Under Union Budget 2021-22, the Ministry of Health and Family Welfare has been allocated Rs.73,932 crore (US$ 10.35 billion) and the Department of Health Research has been allocated Rs.2,663 crore (US$ 365.68 billion). The government allocated Rs.37,130 crore (US$ 5.10 billion) to the ‘National Health Mission’. PM Aatmanirbhar Swasth Bharat Yojana was allocated Rs.64,180 crore (US$ 8.80 billion) over six years. The Ministry of AYUSH was allocated Rs.2,970 crore (US$ 407.84 million), up from Rs.2,122 crore (US$ 291.39 million). (IBEF)

Challenges

  1. In 2012, owing to the price-control exerted by the National Pharmaceutical Pricing Authority’s (NPPA) amended drug pricing mechanism, wherein they calculated and placed a price cap over more than 1000 drugs, pharma companies had to slow down the manufacturing of such drugs.
  2. In 2017, the Indian Goods and Service Tax (GST) prompted a slower growth in the industry. This was owing to elevated manufacturing costs that led to lethargic inventory movement and subsequent dip in profit margins.
  3. And a very crucial aspect of price erosion is the fact that there are many new pharmaceutical companies emerging in the US and Europe, causing Indian companies to lower their costs by almost 70%. The flip side is that the same low costs are attracting these companies to extend contract manufacturing projects to India.

Pandemic Situation

The country is the largest producer of vaccines in the world. Hence, the CoVID situation has attracted a lot of interest in Indian pharma companies. In addition to the earlier mention advantages of partnering with Indian pharmaceutical companies, another factor that has majorly attracted more foreign direct investments (FDIs) is that majority of the global players have pulled out of China and redirected their attention to the Indian market. Overall, it’s been a win-win situation for both the end parties and the world. Making CoVID vaccines easily and quickly accessible to the world population is the need of the hour.

Closing Thoughts

Through all its ups and downs, India has constantly endeavored to blend innovation and skills to work around every obstacle in its path of growth and globalization. And the efforts are evident in the quality and value-added services of the Indian Pharmaceutical Industry.
Over the past decade, the Indian Pharma industry has grown to become popularly known as the ‘Pharmacy of the World’. It is purely out of the huge benefits that India offers in terms of affordability, world-class quality of the generic drugs, the skilled talent pool of experts, low-cost manufacturing prowess, and government initiatives in the country.

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