India’s Drugs Technical Advisory Board (DTAB) has long expressed concerns over growing import of bulk drugs and over the challenges in ensuring the quality of the imported drugs. Hence, it came as no surprise when earlier this month (June 2016) the DTAB endorsed the Ministry of Health and Family Welfare’s (MoHFW) decision to increase customs duty on import of bulk drugs (APIs).
This also comes in the backdrop of India’s excessive reliance on China for its bulk drug requirement (including that for essential medicines) — ~70% of India’s bulk drugs come from China.
Chinese imports have already driven some Indian producers of bulk drugs (e.g. penicillin) out of business, and there are fears that Chinese producers may hike prices after destroying competition. China’s import influence is so strong that any event (such as Beijing Olympics of 2008 when several bulk drug plants in China were shut down to control pollution) could trigger tightening of supply to India, thus impacting domestic production.
The feeling in Indian government bodies is that unless China’s influence on India’s bulk drugs industry is curtailed, it might severely impact domestic growth prospects. By increasing customs duty, MoHFW’s aims (and hopes) to de-incentivize imports and create a level-playing field for domestic manufacturers of bulk drugs.
While DTAB’s move is welcomed by certain sections of India’s pharmaceuticals industry, the fact of the matter is that China still enjoys about 30-40% cost advantage vis-à-vis India in bulk drug manufacturing, making it a preferred import source, especially for manufacturers of essential medicines intending to save margins due to caps in retail pricing. It is unlikely that this advantage will change soon enough for India’s bulk drug industry to become self-sufficient.
In recent years, the Indian bulk drug industry has seen robust growth opportunities on account of off-patenting of several blockbuster drugs. The Associated Chambers of Commerce & Industry of India (ASSOCHAM) expects the bulk drugs industry to record a 12-14% CAGR growth during 2016-2019, driven by demand from manufacturers of off-patent drugs. So, while this move of increasing customs duty might boost growth of the local bulk drugs industry, this is only a small step towards promoting domestic production of bulk drugs.
On their part, India’s bulk drug manufacturers need to decide the basis of competition (specifically with their Chinese counterparts) i.e. cost vs. quality, niche vs. general formulations, regulated (markets with strict regulatory requirements and strong IP regime) vs. semi-regulated markets. Indian manufacturers stand a better chance by playing to their strength and focusing on developing quality products for regulated markets.
Government intervention is also required in the form of incentives, as recommended by the Katoch Committee (established in 2013 to look in to bulk drug industry issues), e.g. tax holidays, land for manufacturing at affordable rates, soft loans, etc., to enable cost-competitive domestic manufacturing. In December 2015, the government vowed to implement the Katoch Committee recommendations within 100 days (i.e. by April 2016). Since then there is no news (on public domain) regarding any development on this front.
It would be an overstatement to say that time is running out for the Indian bulk drugs industry. However, a time-bound action is the need of the hour to compete with China, which has a first-mover advantage (as far as favorable policies and pricing are concerned).