While increased prices will put cost pressure on the domestic industry over the next few months, more importantly it has sparked speculation that this could be a potential ploy by China to scupper efforts of India’s drug industry to be self-reliant, or ‘Atmanirbhar’.
Here’s how China’s action may impact India’s Atmanirbhar plans: Any increase in prices of imported KSMs will discourage indigenous API production in the country, making units unviable and APIs less competitive against Chinese products globally. At present, India is dependent on China for KSMs and APIs, with 70-80% of basic raw materials imported for making medicines.
For certain life-saving antibiotics like cephalosporins, azithromycin and penicillin, the dependence on Chinese imports is as high as 90%.
To boost indigenous manufacturing and self-reliance, the government announced an incentive scheme to manufacture 50-odd crucial APIs, where import dependence is high. Plans to spur domestic manufacturing have been there for a while. Now high volatility in prices due to the Covid-19 pandemic, and tensions with the neighbouring country, have highlighted the risk of dependence on a single source.
Typically, a spike in prices of KSMs is cyclical, and is followed by those in APIs too. But this did not happen this year. This has raised eyebrows and triggered apprehension. Experts said, “Coupled with appreciation in the RMB (Chinese currency renminbi), the move defies economic logic.”
Further, the RMB increased 4% against the dollar over the last 45 days. Chinese companies are believed to be operating through a cartel and manipulating KSM prices for steroids and antibiotics, a Mumbai-based executive who trades in bulk drugs told TOI. Indian Drug Manufacturers’ Association president Mahesh Doshi said, “Cost pressure will be there (on API manufacturers) due to the increase in prices of imported KSMs.”
The government’s production-linked scheme proposes to provide financial incentives to promote domestic manufacturing, but involves large investments from companies, particularly for the much-needed fermentation-based products. “It is crucial to ensure that investment happens. If we do not draw investment, then it will be impacted,” said PwC India pharma leader Sujay Shetty.
To be competitive and a volume player in APIs globally, India will need to keep input costs low. Countries’ procurement strategies are now gradually being recalibrated and they are looking at diversifying their procurement sources away from China or seeking alternative sources for the same API.