India is rightfully known as the "pharmacy of the world" due to the popularity of its economical and high-quality medicines worldwide. The Indian pharmaceutical sector is a significant player in the global pharmaceutical industry. India is the third-largest producer of pharmaceutical goods globally (in terms of volume) and the twelfth-largest producer (in terms of value). With a 20% volume share in the global supply of generic drugs, the industry leads the world in both production and sales of vaccines, accounting for 60% of the global market. The cumulative FDI in the pharma sector is estimated at US$ 21.22 billion from April 2000-December 2022. The Department of Pharmaceuticals accepted 13 FDI proposals that are expected to generate US$ 340.49 million (Rs 2,814 crore) in foreign investment for brownfield pharmaceutical projects for the fiscal year 2022-2023 (until December 2022). Due to investor-friendly policies and a positive outlook for the industry, the FDI inflows have quadrupled over the span of five years amounting to US$ 1,818 million in December 2022. The Indian pharmaceutical industry generated about ~US$ 45 billion (in value) in 2022. The Indian pharmaceutical sector is valued at around US$ 50 billion, with exports accounting for more than US$ 25 billion. India supplies almost 20% of the generic medication exports worldwide. The sector is likely to be split evenly between domestic and export markets.
Domestic Pharmaceutical Industry
The Indian Pharmaceutical Industry is considered as the "lifeline‟ industry because its products play a critical role in remedying the suffering of diseased persons. This sector contributes significantly to the strength of any economy by producing millions of employments and increasing export revenues. Indian pharmaceutical industry is known for its generic medicines and low-cost vaccines globally. India also has the highest number of US-FDA-compliant Pharma plants after the USA. By 2030, the total market size of the Indian Pharmaceutical Industry is estimated to reach US$ 130 billion. By 2025, India's market for medical devices has the potential to reach US$ 50 billion. The COVID-19 pandemic highlighted India's status as an innovator as well as a supplier of necessary and life-saving medications to every region of the world whenever needed. The domestic market has increased significantly, growing by 9.8% in FY20 and has expanded by double digits CAGR in FY22. The domestic pharmaceutical industry in India is anticipated to reach US$ 130 billion by 2030. In FY23, April to October 2022 witnessed a 22% rise in drug and pharmaceutical exports as compared to the equivalent pre-pandemic period of FY20. The Serum Institute of India is the world's largest vaccine manufacturer in terms of dosage output and global sales. Under the automatic route for greenfield pharmaceuticals, 100% Foreign Direct Investment (FDI) is permitted in the pharmaceutical industry. Whereas in brownfield pharmaceuticals, 100% FDI is permitted in the pharmaceutical industry wherein 74% is permitted under the automatic route and the remaining is permitted with government approval.
Trends of the Domestic Pharma Industry
Growth in FY23 is likely to be underpinned by 7-9% growth in the domestic market, 12-14% growth in emerging markets, and 7-9% growth in the European business, even though growth in the US business is expected to be muted due to the industry's low pricing environment in the near to mid-term.
As seen in the bar chart below, the domestic pharma industry witnessed a boost in FY22 of 14.6%, revamping from the harsh crisis of the COVID-19 pandemic.
Source: TATA Report
There are five major segments in the pharmaceutical sector:
It is a critical pharmaceutical industry segment, accounting for around 35% of the market. An API is a biologically active component of a medicine that produces the desired medicinal effect. There are over 500 API manufacturers in India, contributing about 8% of the global API Industry.
It is one of the industries in the pharmaceutical and biotechnology sector that is expanding the fastest. The pharmaceutical market uses contract research organizations (CROs) and contract manufacturing organizations (CMOs) as service providers for outsourcing activities. These are companies that work on a contract basis with other pharmaceutical companies to provide comprehensive services ranging from drug development to drug production. Manufacturing branded generic medications and supplements for domestic consumption or for overseas markets.
This market is expected to develop at a compound annual growth rate (CAGR) of 22% by 2025, reaching US$ 12 billion. This would account for nearly 20% of India's entire pharmaceutical market.
It is the process of combining various chemicals, including active ingredients, to create a finished medicinal product. India is the largest formula exporter with a 12th rank in terms of export value and a 14% market share in terms of volume. Over the following five years, double-digit growth is anticipated.
Owning and/or running facilities such as hospitals and pathology labs.
In terms of healthcare capacity, the public-private ratio is 70:30. But, as earnings rise, the percentage of the private sector is projected to rise as well. This covers both primary healthcare facilities like hospitals and supplementary services like labs for testing and pathology. Hospitals were formerly considered a capital-intensive companies, but firms have shifted their focus to boosting Return on Capital (ROC) and have gone capex-light through various business models that focus on service supply.
The domestic pharmaceutical sector includes over 24,000 registered pharma SMEs (small and medium enterprises), meeting 70% of the country’s pharmaceutical needs. With a turnover of approximately US$ 4.58 billion (Rs 35,000 crore), SMEs account for 30-40% of the Indian pharmaceutical industry's production. Furthermore, the domestic pharmaceutical sector has a network of 3,000 pharmaceutical firms and 10,500 manufacturing units. India's pharmaceutical sector offers 60,000 generic brands in 60 therapeutic categories.
The Department of Pharmaceuticals estimated that around 2.7 million people are engaged with the industry directly or indirectly in high-skill fields including manufacturing and research and development (R&D).
Transformed over the years as a vibrant sector, presently Indian Pharma ranks third in pharmaceutical production by volume. India supplies 20% of the world's generic medication exports. Moreover, Indian pharmaceuticals are exported to over 200 nations worldwide, with the United States serving as the primary market.
In the below bar chart, from April 2022 to February 2023 of the current fiscal year, pharmaceutical exports increased by 3.14% to US$ 22.9 billion from US$ 22.2 billion in the corresponding period of the prior fiscal year in 2022. India's pharmaceutical exports increased by 4.72% in February 2023 compared to the same month last year.
In the below pie chart, the top 3 export destinations are North America as India's largest export market with a share of 32% followed by Africa (18%), and Europe (16%).
Note: **April 2022 to February 2023
Source: News Articles
Opportunities for Growth in a Post-Pandemic World
Its objective is to make the domestic pharmaceutical industry more effective and competitive so that it may dominate the global market and guarantee the accessibility, availability, and affordability of high-quality pharmaceuticals for mass consumption.
The following sub-schemes are included in this Central Sector Scheme:
In September 2020, the government announced a production-linked incentive (PLI) scheme for the pharmaceutical industry worth US$ 844.50 million (Rs. 6,940 crores). The production-linked incentive (PLI) scheme was introduced to encourage Indian manufacturers to produce critical key starting materials (KSMs), drug intermediates (DIs) and active pharmaceutical ingredients (APIs). To support this, the government granted funds worth US$ 932.66 million. The scheme covers 41 products under the following four categories-
(i) Target Segment I – Key Fermentation-Based KSMs/Drug Intermediates
(ii) Target Segment II - Key Fermentation-Based Niche KSMs/Drug Intermediates
(iii) Target Segment III – Chemical Synthesis-Based KSMs/Drug Intermediates
(iv) Target Segment IV – Other Chemical Synthesis-Based KSMs/Drug Intermediates/APIs
This programme allows 3 Bulk Drug Parks to receive grants in aid for the construction of Common Infrastructure Facilities (CIF), up to a total of US$ 120.9 million (Rs. 1,000 crores) per park, or 70% of the project cost of the CIF or 90% of the project cost of the CIF in the case of North-eastern States and Hilly States. The Scheme's overall financial outlay is US$ 362.9 million (Rs. 3,000 crores), and it will be in effect from 2020-21 to 2024-25.
Its objective is to promote the pharmaceutical and medical device industries by bringing together experts from the fields of academia, industry, and policy to exchange knowledge and experience for the betterment of the two industries. This is done by conducting research, planning awareness campaigns, building databases, and promoting the industry. The scheme would operate from 2020-21 to 2027-28, with a total financial outlay of US$ 416.16 million (Rs. 3,420 crores).
The scheme's goal is to provide simple access to standard testing and laboratory facilities by establishing world-class Common Infrastructure Facilities at medical device parks, resulting in higher competitiveness, lower production costs, and improved availability and affordability of medical equipment, thereby developing a stable ecosystem for domestic medical device manufacture.
The scheme's selected participants will be eligible for incentives on incremental sales of eligible items based on yearly threshold requirements of minimum cumulative investment and minimum percentage growth in sales of eligible products as specified in the scheme's full instructions. Active Pharmaceutical Ingredients, as well as other types of pharmaceutical products, are eligible under the plan. During a period of six years, the scheme offers incentives for incremental sales to selected members. The tenure of the scheme is from 2020-21 to 2028-29 with a total financial outlay of US$ 1.82 billion (Rs. 15,000 crores). Under this Plan, the selection of 55 applicants has been authorised. The scheme covers pharmaceutical goods under three categories.
To assist Micro, Small, and Medium Pharma Companies (MSMEs) with a track record of success in achieving compliance with national and international regulatory standards.
Its goal is to increase the existing pharmaceutical clusters' capacity for long-term expansion by establishing shared facilities.
The Program intends to promote, develop, and export the pharmaceutical sector by providing financial support for seminars, conferences, exhibitions, mounting delegations to and from India to promote exports and investments, conducting studies/consultancies, and facilitating growth, exports, and important issues affecting the Pharma sector.
The Ministry's scheme “Strengthening of Pharmaceutical Industry (SPI)" with a total financial outlay of US$ 60.49 million (Rs 500 crores) extends support required to existing pharma clusters and MSMEs across the country to improve their productivity, quality, and sustainability. The Scheme has 3 components / sub-schemes:
The Pradhan Mantri Bhartiya Janaushadhi Pariyojana initiative opens specialised outlets known as Pradhan Mantri Bhartiya Janaushadhi Kendras (PMBJK) throughout the country to deliver generic medications to the masses at affordable costs. There were 8916 PMBJKs open nationwide as of November 30th, 2022. By March 2025, it is intended to have 10,500 kendras.
The Ayushman Bharat Digital Mission (ABDM) seeks to create the framework required to sustain the nation's integrated digital health infrastructure. It would use digital highways to bridge the existing gap between the various players in the Healthcare ecosystem.
The Road Ahead
During the COVID-19 pandemic, India showed great resilience collectively to bounce back. The industry handled the situation admirably, forming global alliances to increase the manufacturing of emergency medications such as Remdesivir. As of April 19, 2022, India had sent PPE kits, ventilators, and other medical necessities to more than 123 nations, including 178 million doses of the COVID-19 vaccine to more than 96 nations through the Vaccine Maitri programme. Through COVID, India has realised its potential for what can be accomplished if all stakeholders, including industry, government, and regulators, work together. India may achieve its goals of advancing up the value chain and genuinely becoming the pharmacy for the entire world, in terms of volume and value, if it continues to take advantage of this opportunity. India must invest additional resources into producing improved drugs, medical equipment, biologics, diagnostics, and vaccinations. This will provide the much-needed impetus to the quality, cost, and accessibility of medical items through innovation and robust government regulations. Moreover, government schemes like the Ayushman Bharat Digital Mission, have expedited the development of digital infrastructure in the long run which can further streamline the supply chain of the pharmaceutical industry.