Chinese shadow on Indian pharmaceutical industry

 In the last few years, the industry has come under China's shadow with the Chinese capturing nearly the entire supply chain

India is called the pharmacy of the world. It ranks fourth in the world in terms of value and third in terms of volume. India exports medicines to most of the countries and the share of Indian medicines in the US market is 34 percent.

We manufacture medicines for a range of diseases like malaria, common infections, vitamin deficiencies, diabetes, cancer, asthma, HIV, heart diseases.

However, for the last few years, the industry has come under China’s shadow with the latter nearly capturing the supply chain. Due to this, not only the health security of India’s 135 crore people could be at risk, it could even eclipse India’s ability to provide affordable medicine to the rest of the world.

Prior to 2000, there was a worldwide demand for Indian-made Active Pharmaceutical Ingredients (APIs). India was thriving in the field of basic chemicals, intermediate chemicals and APIs. After 2000, though, India continued to be the source of ready-made medicines for the world but the manufacturing of API and intermediates started slipping from India and went into the hands of China.

China created an unimaginable production capacity for intermediate chemicals and APIs and started dumping them in the world market including India at less than half the normal price. The Chinese Government was an active collaborator providing low-interest loans, long-term moratorium on debt repayment, credit guarantees by the Chinese insurance company Sinosure, proactive research and development support, export promotion incentives, marketing incentives, cheap electricity and community facilities, and deliberately lax pollution regulatory laws. Many provisions were against WTO rules.

This can be illustrated with the example of the price movements of 6-APA (6-Amino Penicillanic Acid, a derivative of Penicillin-G), the basic chemical building block for antibiotics, such as Ampicillin, Amoxicillin, Cloxacillin, Dicloxacillin, Flucloxacillin, Oxacillin among others. In 2005, India was completely self-sufficient for 6-APA as there were four manufacturers of Penicillin-G in India. Today, India, along with the world, has become 100 percent dependent on China for this input.

Until 2001, before the Chinese market aggression, 6-APA was sold for an average price of $22 per kilo. Between 2001 and 2007, the Chinese suppliers crashed the 6-APA prices by less than half to an average of US$9 per kilo. Indiancompanies were forced to stop production as they could not sustain the losses. As soon as Indian companies went out of production, China started increasing the prices of Penicillin-G and 6-APA. The price of 6-APA has since increased to a peak of USD 35 per kg.

China has thus established a monopoly in almost all types of Intermediates and APIs. It has a state-sponsored strategy where all Chinese suppliers come together to exploit the situation by significantly hiking the prices of products they export. For example, the price of ‘DBA’, the key input for anti-malarial drugs, went up by 47 percent, ‘Erythromycin TIOC’, key input for Azithromycin, increased by 44 percent and that of ‘Penicillin-G’ by 97 percent.

As a result, India faces a public health security crisis. If India is completely dependent on China for critical inputs, it is possible that our medical supplies could be jeopardised if China suddenly stops supplying these APIs.

China has already threatened to stop drug supplies to the US and concerns are being expressed in the US. India's National Security Advisor Ajit Doval had also warned that India’s dependence on China for APIs could be a serious national security threat.

The Government of India has recently announced Production Linked Incentives (PLI) plan to encourage API production in the country, under which an amount of Rs 12,000 crore has been allocated. But that alone will not suffice. To defeat China in the price war, the government will have to impose ‘Safeguard’ and ‘Anti-Dumping’ duties on all APIs.

Where API firms are struggling for survival, funds may be allocated for upgradation of technology. The Government's support for the establishment of research and development facilities could be helpful. Easing environmental laws for API units and exemption from environmental laws may be appropriate strategy. Other incentives like reduction in import duty for testing equipment, allotment of land at cheaper rates, making it a pre-condition that Indian buyers of APIs and Intermediates are required to buy at least 50 per cent of their requirements from domestic manufacturers if those products are available from India, etc., could be some other steps to safeguard the national interest and possibly avoid an impending crisis.

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