Health is of paramount importance in the social and economic development of the world. It is in this regard, that the pharmaceutical industry is widely recognised as a predominant driver in the process of economic development. The Indian Pharmaceutical Industry has acquired a noteworthy position in the global pharma sector and has achieved significant growth in the recent years. In addition to catering to the needs of the domestic demand, the pharmaceutical industry is also engaged in contract manufacturing, contract research, clinical trials, contract R&D, and direct exports to developed and developing country markets.
Globally, the Indian pharmaceuticals market is the third largest in terms of volume and eleventh largest in terms of value. As per the data from ITC Trademap, India accounted for more than 6 percent of the total ‘vaccines for human medicine’ exported (by quantity) in the world during 2019.
Exports
The exports of pharmaceutical products were valued at US$ 15.06 billion during the year 2019-20, registering a year-on-year growth rate of 2.10 percent. The overall pharmaceutical exports recorded a CAGR of 5.4 percent during FY15-20, as the value of exports increased from US$ 11.5 billion in 2014-15 to US$ 15.06 billion in 2019-20. This growth was mainly fuelled by growth in ‘human, animal and other blood for medicinal use, modified immunological products’ and ‘medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses’, which registered CAGRs of 8.57 percent and 5.7 percent, respectively during the same period.
Trends in Pharmaceutical Exports from India
(In US$ Million)
During 2019-20, the USA was the largest export destination for pharmaceutical exports from India, accounting for more than 38 percent of the total pharmaceutical exports from the country, followed by South Africa (3.35 percent), the UK (2.80 percent), Russia (2.77 percent) and Nigeria (2.40 percent). The top 5 export destinations accounted for more than 50 percent of the total exports.
Foreign Direct Investments
FDI
FDI of upto 100 percent is allowed under the automatic route for greenfield pharma projects. FDI of upto 74 percent is permitted under the automatic route in brownfield pharmaceuticals. Any FDI beyond 74 percent requires government approval. During April 2000 to March 2020, the sector has attracted FDI of US$ 16.50 million, accounting for 3.51 percent of the total FDI inflows.
Other conditions:
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‘Non-compete’ clause would not be allowed except in special circumstances with the approval of the Foreign Investment Promotion Board
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The prospective investor and the prospective investee are required to provide a certificate along with the FIPB application as per Annexure-10 of Department of Industrial Policy and Promotion (DIPP), Consolidated FDI Policy (Effective from June 07, 2016).
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Government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approval.
Outlook
Indian pharmaceutical sector remains under pressure since the past few years due to decline in revenues from the US market (India’s largest overseas market), and increased competition. Moreover, generic adoption reaching saturation levels and regulatory overhang, along with base effect catching up too, remain a big concern for the sector. Despite all these concerns, Indian pharmaceutical industry is expected to recover on the back of increasing consumer spending, rapid urbanisation, rising healthcare insurance and the demand for Covid-19 related pharmaceuticals in the near future. Robust growth in biotech industry and higher spending in research and development by the major companies spread ray of hopes for the industry to grow extensively in near future.
Drugs and formulation exports registered growth in 2019-20, as a result of newer launches and opportunities in limited competition products, amid reducing pricing pressures in the US market due to Covid-19 pandemic. Rupee depreciation during the year was also one of the major factors adding to the growth in exports.
Slower exports due to delay in USFDA inspections and clearance is likely to bring down the revenue growth for most players in the industry. With the lockdown sustained in most economies including India, the logistics issues are estimated to further restrict exports growth in 2020-21. However, transition to the specialty segment and strong capabilities in high-value active pharmaceutical ingredients would support exports. Outlook for the industry is positive in the medium term.
