Pharma powerhouse: What is fueling India’s path towards global preeminence?

The Indian pharmaceutical industry, a global leader in high-quality, low-cost drug production, commands over 20% of global generics supply and addresses 60% of worldwide vaccine demand. Crucial to India’s economic growth and employment, the industry benefits from government initiatives like the Production Linked Incentive (PLI) scheme, which supports production, boosts exports, and fosters technological innovation.

Comprising over 3,000 pharma companies and 10,500 manufacturing facilities, India has emerged as a successful producer and distributor of life saving medicines across the world at most affordable prices. The industry is projected to grow to US$ 65 billion by 2024, US$130 billion by 2030, and an impressive US$450 billion by 2047. IBT analyses the major trends and drivers expected to propel the growth of the Indian pharma sector in this journey. 

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The Indian pharmaceutical industry has been globally acclaimed for its leadership in the generic drugs sector. Recognized as the “Pharmacy of the world” and currently valued at US$50 billion, the Indian pharmaceutical industry is expected to reach US$ 65 billion by 2024, US$ 130 billion by 2030 and US$ 450 billion by 2047. Apart from keeping up with the local demand, the Indian pharma industry commands over 20% of the global supply chain and addresses approximately 60% of the worldwide demand of vaccines. India contributes up to 70% of the WHO demand of Diphtheria, Tetanus and Pertussis (DPT) and Bacillus Calmette-Guerin (BCG) vaccines and 90% of the WHO demand for the measles vaccine.

Moreover, India is the biggest contributor to UNESCO, with a share of over 50-60% and boasts the highest number of USFDA approved plants outside the US.

In the past few years, various geopolitical tensions and COVID-19 pandemic highlighted the importance of supply chain resilience and diversification, resulting in growing interest in the China +1 strategy where international companies seek to diversify their supply chains by investing in alternative manufacturing locations, especially India. During COVID-19 in FY 2020-21, the sector contributed approximately 1.32% to the Gross Value Added (GVA) of the Indian economy. In FY2021-22, the total annual turnover of the pharmaceutical industry reached US$ 42.34 billion.

Ashok Kumar Madan, Executive Director, Indian Drug Manufacturers’ Association, comments, “India has long been known as the “pharmacy of the world,” and during the COVID-19 pandemic, it solidified this reputation by becoming a key global provider of high-quality medicines at affordable costs. The country efficiently supplied essential medications to other nations, stepping in where developed countries often failed to offer timely medical assistance.”

PLI schemes drive the change?

Despite these tremendous achievements, the pharma industry still faces hurdles such as regulatory compliance, infrastructure constraints, continuous need for innovation and investment as well as dependency on China for the supply of key chemicals critical to the manufacture of Active Pharmaceutical Ingredients (APIs). According to a report by CareEdge, India’s dependency on Chinese pharma imports is at 55-56% and is expected to remain high in the coming years.

To promote the production of high-value products and increasing the value addition in exports, generating employment and benefitting from the China+1 strategy, the Department of Pharmaceuticals launched 3 Production Linked Incentive Schemes, with the aim to enhance global competitiveness of domestic manufacturing and establish domestic leaders in the industry. The following schemes have been launched for the pharma sector:

1. PLI 1.0 or PLI scheme for Key Starting Materials (KSMs)/Drug Intermediates (DIs) & Active Pharmaceutical Ingredients (APIs): Under the PLI scheme for Bulk Drugs, the objective is to boost domestic production of 41 select critical bulk drugs in the country with an outlay of Rs 6,940 crore. These consist of fermentation-based bulk drugs with an incentive rate of 20% for the first four years, 15% for the fifth year and 5% for the sixth year (2023-24 to 2028-29) and chemical synthesis-based bulk drugs with an incentive rate of 10% for six years viz., 2022-23 to 2027-28.
2. PLI 2.0 or PLI scheme for pharmaceuticals: With a financial outlay of Rs 15,000 crore and the tenure from FY 2020-21 to FY2028-29, the scheme provides for financial incentive to 55 selected applicants for manufacturing of identified products under high-value drugs like – Biopharmaceuticals, complex generic drugs, active pharmaceutical ingredients, repurposed drugs, auto immune drugs, anti-cancer drugs. The scheme provides incentives on incremental sales to selected participants for a period of 6 years at the rate of 10% for FY2022-23 to FY2025-26, 8% for FY2026-27 and 6% for FY2027-28.

Effect of PLI schemes on Research and Innovation

The pharma sector has experienced a notable decrease in raw material imports due to the PLI schemes. India is now producing a variety of unique intermediate materials and bulk drugs domestically, including Penicillin-G. Moreover, the production of 39 medical devices has begun, ranging from CT-Scans and Linear Accelerators (LINAC) to Rotational Cobalt Machines, C-Arms, MRIs, Cath Labs, Ultrasonography machines, Dialysis Machines, Heart Valves, and Stents.

Pharma services, dominated by exports, account for approximately 50% of the healthcare innovation market and healthcare innovation in India is currently a US$ 30 billion opportunity. The future of innovation is expected to be influenced by the growing consumerization of health, transformations in the global healthcare value chain, the enhancement of Indian scientific and technological expertise, and favorable regulatory developments. By FY 2028, the innovation opportunity could reach approximately US$ 60 billion, alongside structural ecosystem changes such as consolidation, shifts in profit pools, and increased partnerships.

In recent years, new frontiers of innovation have emerged as companies increasingly leverage emerging technologies. This shift has introduced new innovation vectors such as:

1. Innovations aimed at reducing the cost of existing products or services while maintaining quality, such as producing more affordable patient wearables, electronic equipment, and consumables.
2. Creating new software solutions to address the needs of consumers and healthcare players, such as pharma and med-tech companies. Examples include companies offering SaaS-based hospital management systems (HMS), AI-based diagnostics, and pharmaceutical IT solutions.
3. Innovations in delivery methods that significantly alter unit economics, including federated models focusing on specific segments of the services value chain. Examples include telemedicine, e-pharmacy, e-diagnostics, and digital health insurance companies.
4. Creating “new to the world” products, encompassing both hardware and biologics, such as companies manufacturing remote patient monitoring devices and developing new cell and gene therapy-based therapeutics.

Export scenario

Various initiatives and implementation of PLI for Pharma industry by Indian government have led to a visible hike in exports according to recent statistics. India witnessed a YoY increase in pharmaceutical exports of 9.67%, jumping from US$ 25.4 billion in FY ’23 to US$ 27.9 billion in FY ’24. In March 2024, pharma exports grew by 12.73% YoY to US$ 2.8 billion.

On average, India’s pharma exports are worth US$ 2-3 billion every month. The top five export markets for the sector during the last fiscal are the US, the UK, the Netherlands, South Africa and Brazil. The US alone accounts for over 31% of India’s total pharma exports, followed by the UK and Netherlands (about 3% each).

Speaking on current Pharma exports and future outlook of the industry, Ashok Kumar Madan, Executive Director, Indian Drug Manufacturers’ Association says –

“For the first time, the Indian government has allocated a significant Rs 6,940 crores under the Production-Linked Incentive (PLI) scheme to the pharmaceutical industry. These PLI schemes have significantly boosted exports and reduced dependence on Chinese imports. Recent export trends show a 3.5% YoY increase in FY23 and a 9.66% increase in FY24, with total exports reaching US$ 27.8 billion. While we can reduce imports from China and other nations, it will take a long time to be completely independent as we need to produce intermediates and key starting materials, for which we currently still rely on China.”

Rise in India’s Pharma exports FY21 to FY24

Source: Pharmexcil, figures in US$ million*

What makes India stand out?

The Indian pharma industry is further expected to solidify its status as a sunrise sector of the country. Comprising over 3,000 pharma companies and 10,500 manufacturing facilities, India has emerged as a successful producer and distributor of life saving medicines across the world at most affordable prices.

Here are some of the contributing factors that have cemented India’s stature as the “pharmacy of the world” and  helped unlock the thriving potential of the pharma industry:

• Trust among nations: India has established a global reputation for delivering essential, high-quality medicines swiftly and at affordable prices since COVID 19. The pharmaceutical industry has not only introduced groundbreaking innovations during these times but has also significantly enhanced its global capacity to distribute time-critical drugs to every corner of the world. From FY18 to FY22, the Indian pharmaceutical industry logged an average growth rate of 9.47% to $42.34 billion, primarily driven by an increase in exports and a rise in the domestic market.
• Production boost: India produces drugs at the lowest costs; however, several leading Indian drug manufacturing firms hold the capacity to serve both the Indian market and cater to the global supply of essential drugs, catalyzed by the government support.
• Technological advancements: India is making significant strides for the development and manufacturing of biopharmaceuticals and biosimilars which have an expanding market where Indian companies are investing exclusively in R&D sector. Moreover, Indian companies are increasingly focusing on innovation and developing novel drugs rather than just manufacturing generics.
• Digital Transformation and Supply Chain Resilience: The COVID-19 pandemic accelerated the adoption of telemedicine and digital health solutions in India, with startups and established companies delivering healthcare services through digital platforms. The “Make in India” initiative and a global focus on supply chain resilience highlighted the API manufacturing sector. India aims to reduce its API import dependence and boost domestic production. Exports are growing, reaching markets in the US, Europe, Africa, and Asia. Both domestic and international companies are expanding their portfolios through strategic acquisitions, adapting to the evolving global competitive landscape.

Today, the Indian pharmaceutical industry has achieved a truly global presence. Indian companies produce around 40% of all generic drugs consumed in the United States and 25% of all medicines dispensed in the United Kingdom. Additionally, India supplies two-thirds of the world’s antiretroviral drugs, playing a crucial role in the international fight against AIDS. With robust growth projections and strategic government initiatives like the Production-Linked Incentive (PLI) schemes, the industry is poised for substantial expansion.

Future potential

Key factors that will enable growth in the Indian pharma sector include increased investments in R&D, which can be stimulated through tax incentives and the adoption of more flexible regulatory norms for clinical trials. Despite challenges like dependence on Chinese imports, India’s pharmaceutical sector continues to innovate, bolstered by digital transformation and a focus on supply chain resilience. A report by EY titled ‘Pharma and healthcare for India@100: a century of change on the horizon’, highlights the key growth drivers of Indian pharma thus:

• Disruptive Innovation and Collaboration:
  • Focus on disruptive innovation in pharma and biopharma.
  • Collaborative engagement among pharma companies, startups, biotechs, academia, and clinical researchers.
  • Supportive financing, infrastructure, policies, and regulations.
• Role of Large Pharmaceutical Companies:
  • R&D and harnessing innovation from academia and startups.
  • Translating innovation into market advancements.
  • Global Capability Centers (GCCs) fostering talent and skill development.
• Government Initiatives:
  • National Policy on Research and Development and Innovation in Pharma-MedTech Sector.
  • Scheme for Promotion of Research and Innovation in Pharma MedTech Sector (PRIP).
• Digital and Data Analytics in R&D:
  • Transforming the R&D value chain with digital technology, data analytics, AI, and ML.
  • Enhancing efficiency, reducing costs, and improving patient access.
  • Leveraging India’s robust IT capabilities for global advancements.
• Global Pharma Supply Chain Integration:
  • Emerging trends: pricing, inflation, technology, sustainability, personalized therapeutics, innovative healthcare delivery.
  • Geopolitical changes positioning India as a “China+1” opportunity.
  • Digital transformation for operational efficiency and quality compliance.
  • India housing the most USFDA-approved plants outside the US.
• Sustainable and Equitable Healthcare Access:
  • Government initiatives: Ayushman Bharat and Ayushman Bharat Digital Mission (ABDM).
  • Improving access and reducing costs for underserved populations.
  • Comprehensive programs for managing non-communicable diseases (NCDs).
  • Empowering patients and healthcare providers throughout their healthcare journey.
• Collaboration for Patient Journey:
  • Active roles of pharma companies, government, and associations in enhancing healthcare quality and reducing expenditure.