India has embarked on an ambitious plan to reduce reliance on China for key commodities as it seeks to become self-sufficient in its pursuit of being the ‘pharmacy of the world’.
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India started with a ambitious plan to reduce China’s reliance on key commodities as it strives to become self-sufficient in its pursuit of being the ‘pharmacy of the world’.
India is already the third largest drug manufacturer by volume and has one of the lowest production costs in the world. About one in three pills consumed in the US and one in four in the UK are made in India.
However, India’s $42 billion pharmaceutical sector relies heavily on China for key active pharmaceutical ingredients or API chemicals responsible for the therapeutic effect of drugs.
According to a government report, India imports about 68% of its APIs from China, as it is a cheaper option than producing them domestically.
However, an estimate by the Trade Promotion Council, a government-backed organization, puts the percentage of API dependence on China at around 85%. Another independent study conducted in 2021 finds that while India’s API imports from China are close to 70%, China’s reliance on “certain life-saving antibiotics” is about 90%. Some drugs that rely heavily on Chinese APIs include penicillin, cephalosporins and azithromycin, the report said.
That may be starting to change.
Under a government plan launched two years ago, 35 APIs were produced in 32 plants across India in March. Moody’s Indian affiliate rating agency ICRA Limited estimates this is expected to reduce reliance on China by as much as 35% by the end of the decade.
India emerged as a major supplier of Covid-19 vaccines, supplying 75 countries, including Indonesia, where on July 2, 2021, a doctor injects the vaccine AstraZeneca into a recipient on Bintan Island.
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In the first phase of the plan, a total of 34 products were approved and distributed to 49 players, according to ICRA Limited’s assistant vice president, Deepak Jotwani.
“The first phase will result in a reduction of imports from China by about 25-35% by 2029,” Jotwani estimated.
India’s role in the pandemic
The government hopes to push the pharmaceutical sector — currently valued at about $42 billion — to $65 billion by 2024. The goal is to double that target to between $120 billion and $130 billion by 2030.
India has also emerged as a key player in global efforts to fight the pandemic.
According to the government, India has supplied more than 201 million doses to about 100 countries around the world South East Asia, South America, Europe, Africa and the Middle East starting May 9.
India exports vaccines both through government-funded initiatives and under the Covax platform.
The country had to briefly halt exports in April 2021 as domestic cases increased and it needed more vaccines at home. In October of that year, it resumed exports.
It is noteworthy that according to the government, more than 80% of the antiretroviral drugs used worldwide to fight AIDS are also supplied by Indian pharmaceutical companies.
India has not always been so dependent on China for essential ingredients for its medicines.
In 1991, according to PWC’s advisory group, India imported only 1% of its APIs from China.
That changed when China ramped up API production in its 7,000 drug parks in the 1990s with infrastructure such as wastewater treatment plants, subsidized power and water. Production costs in China fell sharply, driving Indian companies out of the API market.
Long road to self-sufficiency
It will take a “long time” for local production to grow large enough to meet the demand of Indian pharmaceutical manufacturers, senior researcher at the Institute of South Asian Studies at the National University of Singapore, Amitendu Palit told CNBC.
“Until then, India will have to import APIs substantially from China. Reducing import dependency is important to reduce disruptions in the Indian pharmaceutical supply chain,” Palit said.
Founder of Mumbai-based Somerset Indus Capital Partners, which operates a private equity fund in healthcare, Mayur Sirdesai, said the focus of the production incentive scheme could be more narrow.
“We will probably do better with low volume, by focusing on niche APIs than high volume ones,” he said, adding that many other chemical processes in the production cycle would also need to be moved to India to save costs in the long run.
Geopolitical considerations underpinned the decision to reduce reliance on China, said Pavan Choudary, president and secretary general of the nonprofit Medical Technology Association of India.
“Blind offshoring is now becoming ‘friendshoring,'” Choudary said, explaining that “friendshoring” means outsourcing business activities to countries with a similar political system and with whom there is a “history of peace.”
He also reflected on the recent efforts of a number of countries to diversify supply chains outside of China.
Choudary — an influential voice in policy-shaping in the pharmaceutical industry — estimates that in addition to APIs, India imports $1.5 billion worth of medical equipment from China in imaging technology or machines to perform magnetic resonance imaging and other types of advanced scans.
He said reducing reliance on China for medical devices would take longer than for APIs.
“APIs depend on a chemical ecosystem that already exists in India,” he said, adding that there was more “technological complexity” in medical devices.
“It will take a little longer to reduce this dependence,” he said.