A policy pill for the pharma sector

India’s pharmaceutical sector is one of our most compelling manufacturing success stories. In a country not typically seen as a manufacturing hub, pharma stands out – with over 700 US FDA-approved units (the highest outside the US and steadily growing at 5%), and exports crossing $27 billion at 8% annual growth. We are the third-largest producer by volume (yet only 13th by value), supplying nearly 60% of global vaccines and 20% of generics. However, we must not take our past successes for granted in a world increasingly reshaped by trade conflicts and forced supply chain realignments. We need, therefore, to go beyond the initial optics. Strategic policy modifications are essential.

The global pharma market is valued at $1.6 trillion, with exports accounting for $835 billion. Germany ($119 billion), Switzerland ($99 billion), and the US ($90 billion) dominate this space. Formulations – patented and generics – make up 70% of trade, APIs and bulk drugs about 20%, and vaccines around 7%. India is a global force, but our value-based market share remains modest. China’s pharma trajectory is instructive: from a 1% share in 2003 to over $50 billion in export revenues today.

Our vaccine story illustrates both promise and vulnerability. The global vaccine market, estimated at $87.75 billion in 2024, is projected to reach $151.96 billion by 2033. India is the second-largest vaccine exporter by volume (24.7%) but contributes just 2% by value. This stems from our focus on low-income countries (LICs), which source 80% of their vaccines from India. While we have 21 globally competitive institutions, most firms operate as licencees or focus on off-patent vaccines. In contrast, the EU27 bloc dominates both volume (44%) and value (60.3%), supplying 60% of vaccines to high-income countries (HICs). The US, though smaller in volume, contributes 22% of the global vaccine export value. Indian firms have yet to enter the higher-yield spaces.

In formulations, India leads the global generics market by volume (20%) but captures only 5% by value. Generics, while widely prescribed, account for a smaller share of total drug costs. Illustratively, in the US, they represent 90% of prescriptions but only 13.1% of drug spending. Despite our dominance in volume, Indian companies have, as in vaccines, not moved up the value chain.

The global market size of the API and bulk drug segment was $239.18 billion in 2024. India ranks third, with an 8% share and a growth rate of 8.3%. We supply 57% of WHO-prequalified APIs. Yet, we remain deeply dependent on China for 70-90% of our requirements in over 60 critical APIs. The Production-Linked Incentive (PLI) scheme, announced to reduce this dependency, has seemingly underperformed, perhaps reflecting a reluctance of our corporates.

These reluctances/inhibitions may be happening because of our structural dispersion. India’s pharma manufacturing ecosystem includes over 3,000 formulation producers and 10,500 production units across 118 clusters in 19 states. However, just 10 companies account for a third of the domestic market, and only 300-350 have significant national or export scale. In contrast, countries like Switzerland, Germany, and China have significantly fewer but individually much larger clusters, often located near research-oriented universities. Our clusters thus lack the ecosystem externalities needed to support innovation and scale. As a result, R&D spending in Indian pharma remains minuscule compared to global peers. Even our most celebrated firms lag in innovation. Most firms are small, undercapitalised, and lack access to quality infrastructure. Project costs remain among the highest globally, as few units benefit from shared public facilities: power, warehousing, transport, housing, and environmental management. China, by contrast, even offers industrial land on 40-year leases.

So, what needs to change? Attempting a shift from volume-centric to value-driven exports will require incentivising innovation, patent filings, and high-value formulations. This needs a willingness from policymakers to actively seek out the ‘real asks’ of industry, not just presuppose the schemes. Also, overcoming the current academia-industry disconnect, our structural weakness, will require seeking out the ‘real asks’ of academia as well.

We need to reduce API import dependency through aggressive support for domestic production by strengthening the existing PLI schemes by providing land and globally competitive infrastructure via lease-based schemes to reduce promoter risks. Shared facilities should meet global standards, and clusters must be integrated with research institutions to foster innovation. Alongside, policy execution must be time-bound, transparent, and publicly tracked.

India’s pharma sector has the potential to be not just the pharmacy of the world, but its innovation engine. But to get there, we must confront our structural weaknesses head-on. The world is watching, and so are our competitors.

The writer is former chairman of the Export Import Bank of India is a banker with a theory of everything.