Global de-risking of supply chain bodes well for Indian bulk drugs

An increase in demand for Active Pharmaceutical Ingredients (APIs) from India is a result of increasing customer diversification away from China, with some countries adopting a 'China plus one' policy.

The business strategy to avoid investing only in China and diversify business into other countries augurs well for Indian pharma, with the latter identifying and prioritizing production of 53 raw materials and APIs, and investment to the tune of $1.3 billion in domestic pharmaceutical producers.

The government has set in motion a series of initiatives including establishing pharma clusters, offering production-linked schemes and other related measures with a view to bolster India’s API-production capacity and turn India into a globally competitive API manufacturing hub.

PLI scheme aimed to kick-start API sector

As an official pointed out, India's Production Linked Incentive (PLI) scheme, which was approved in December, is meant to be a kick-starter for API producers to ensure supply at competitive prices. The objective is to gain enough volumes in the grant period so that economies-of-scale make the post-grant business of API production viable.

The official added that March 2020 saw a global shift in sentiment to reduce dependence on a single country and the Indian government immediately stepped up to the plate.

India has also revived state-run companies to ramp up cheap generic production.

Though API prices are expected to normalize in the near term, Indian manufacturers nevertheless remain in a sweet spot and will continue getting opportunities to drive growth over the long term.

Market research agency Crisil has said in a note that Chinese supply disruptions and persistent quality issues provided opportunities for Indian players "as customers look at India as an alternative supplier of bulk drugs. Indian API exporters have been able to garner good realizations on their exports during the first half of this fiscal." Major regions such as the USA and Europe ensured good exports growth.