Pharmacy of the World: India's earnings from drug exports and its plans to surpass the US and China in the pharmaceutical sector.

In recent years, India has been attempting to reclaim the title of the world's primary manufacturing hub from China. Space programs and new high-tech factories, the expansion of leading global corporations' presence, and optimistic forecasts from investment banks are contributing to its transformation into a significant industrial power.

First the pandemic, and then geopolitical tensions and the trade war between Washington and Beijing highlighted the importance of resilience and diversification in supply chains. As a result, interest is growing in the "China + 1" strategy: companies are increasingly investing in alternative manufacturing locations, particularly in India, which is reducing taxes and offering other economic incentives.

An essential component of Prime Minister Narendra Modi's economic strategy is the pharmaceutical industry. This sector in India, known as the world's pharmacy due to its volume (third after the USA and China), range, and low drug costs, is experiencing a boom. If in 2020 the market was valued at $40 billion, by 2030 it is projected to reach $130 billion, and by 2047 - $450 billion.

India already satisfies over 50% of the generic drug needs of African countries (copies that must match the original drug in therapeutic effectiveness and safety), about 40% of the demand for generics in the USA, and up to 25% of the total medicine needs in the UK. Overall, New Delhi controls over 20% of the global pharmaceutical supply chain and about 60% of the total vaccine demand.

Gandhi's Pivotal Decision

The first Indian pharmaceutical company, Bengal Chemicals & Pharmaceuticals, was established in Kolkata in 1901. Over time, a patent regime was introduced in the country, which recognized patents for products and production processes. At that time, foreign enterprises dominated, controlling 80-90% of the market mainly due to imports.

The need for import substitution through strengthening technological capacity, reducing foreign dominance, and encouraging small manufacturers was a demand of the time. In 1970, Indira Gandhi's government developed a law prohibiting the patenting of drug compositions, allowing only the patenting of the method of obtaining them.

"The idea of a more orderly world is that medical discoveries will be free from patents and there will be no speculation on life and death," Gandhi said.

This allowed local producers to create inexpensive analogs of original drugs without violating patent rights in India. It worked: over the next 25 years, the number of pharmaceutical companies grew to 24,000.

[IMAGE_1] Research work at the Indira Gandhi Institute of Pharmaceutical Sciences. It was indeed Gandhi's government's decision that became pivotal for the sector's development.

Photo of the Indira Gandhi Institute of Pharmaceutical Sciences

Over time, manufacturers entered external markets, facilitated by the economic liberalization in India initiated in 1991. This opened the country to privatization and globalization. A significant milestone for the industry was 2005, when India signed an agreement with the WTO. The new legal regime prohibited Indian manufacturers from producing generics while the drugs were under patent protection.

At the same time, this agreement opened new opportunities. India produced quality, affordable medicines, and the English proficiency of its workforce made the country a good business partner for other nations. Lower production costs than in the USA and Europe attracted Western giants, who began relocating their packaging and manufacturing operations to India. Currently, companies like Pfizer, Novartis, and AstraZeneca operate there.

The World's Pharmacy

According to Deloitte, the Indian pharmaceutical sector comprises over 3,000 companies and more than 10,000 production facilities. The largest by market capitalization are Sun Pharma, Cipla, Dr. Reddy's Laboratories, Torrent Pharmaceuticals, and Lupin. The main production facilities are concentrated in the states of Karnataka, Maharashtra, Gujarat, Uttar Pradesh, Tamil Nadu, and the National Capital Territory of Delhi.

India ranks third in the world in terms of drug production volumes and eleventh in value terms. In the 2023-2024 fiscal year, its exports grew by 10% to $27.9 billion. Among the largest markets are the USA (31%), the UK, and the Netherlands (3% each). Additionally, India has opened markets in Montenegro, Chad, Brunei, Sweden, Haiti, and Ethiopia.

Indian pharmaceutical companies primarily focus on relatively inexpensive generics and biosimilars (drugs similar to those approved by regulators). Also in their focus are over-the-counter medications, vaccines, and contract research. For instance, India was the first to introduce affordable analogs of HIV medications ("Zidovudine") and cancer treatments ("Imatinib") just a few years after their launch in the USA.

India is a leading global source of affordable HIV medications, especially for African countries: over 80% of the drugs for antiretroviral therapy for HIV-infected individuals worldwide are supplied by Indian companies.

[IMAGE_2] India helped reduce prices for malaria, HIV, hepatitis C, and tuberculosis medications.

Photo NYT

Local producers also supply low-cost vaccines. When major Western firms had a complete monopoly on the recombinant hepatitis B vaccine, India was the first to release it into the market at an affordable price.

Moreover, the country is a global leader in supplying DTP vaccines (combined vaccines against diphtheria, pertussis, and tetanus), BCG (against tuberculosis), and measles vaccines. India is critical to the WHO, providing 40% to 70% of the organization's demand for DTP and BCG vaccines, as well as 90% of the need for measles vaccines. About 65% of children worldwide receive at least one Indian vaccine.

[IMAGE_3] Indian manufacturers cover 90% of the demand for measles vaccines.

Photo Getty Images

The pharmaceutical industry in India also played a significant role in treating COVID-19. As part of "vaccine diplomacy," India supplied nearly 300 million doses of its own vaccine Covaxin and several others to 101 countries, including free of charge.

[IMAGE_4] Indian Bharat Biotech developed the COVID-19 vaccine Covaxin.

Photo Getty Images

Modi's government is also actively developing the contract research and manufacturing sector (CDMO) within the pharmaceutical industry: foreign giants are outsourcing research, trials, and drug production. In 2023, the Indian CDMO market was valued at nearly $20 billion, and by 2029 it could reach $45 billion.

[IMAGE_5] The Indian-made Covishield vaccine is a licensed equivalent of the drug developed by Oxford University and AstraZeneca. This was the first COVID vaccine to enter Ukraine, becoming the subject of political battles.

Photo Getty Images

Prospects, Challenges, and Issues

The pharmaceutical industry in India is vast yet fragile. Although the country is a major supplier of active pharmaceutical ingredients (APIs), nearly 70% of its components are imported from China. This dependency highlights a critical issue: investments in research and development (R&D) remain insufficient.

India spends 0.8% of its GDP on R&D compared to 3-4% in the