Domestic Manufacturing of APIs (Active Pharmaceutical Ingredients): Status, Challenges and Solutions – Explained, pointwise

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Officials from the Union Ministry of Health recently noted that India has started making 29 out of 43 ‘critical’ Active Pharmaceutical Ingredients (APIs) that were imported earlier. This will go a long way in reducing dependence on China. This is the outcome of the Product-Linked Incentive (PLI) scheme for pharmaceutical goods launched by the Department of Pharmaceuticals in 2021. Achieving self-sufficiency in domestic manufacturing of APIs will help India become the global hub of pharmaceutical industry.

What are the APIs?

The Active Pharmaceutical Ingredient (API) is the biologically active component of a drug product (tablet, capsule, cream, or injectable) that produces the intended health effects. An example of an API is the acetaminophen contained in a pain relief tablet. The active ingredient in a biological drug is called a Bulk Process Intermediate (BPI). An example of a BPI is the insulin in medicine to treat diabetes. Combination therapies have more than one active ingredient, each of which may act differently or treat different symptoms. APIs find application in high-quality drugs that are used to treat different diseases.

What is the current status of APIs manufacturing in India?

The global pharmaceutical market is ~ US$ 1.2 trillion with API market of ~US$ 182.2 billion and is estimated to reach US$ 245.2 billion by 2024. The pharmaceutical industry in India is 3rd largest in the world (in terms of volume) and 14th largest in terms of value. The Indian industry has a strong network of 3,000 drug companies and about 10,500 manufacturing units.

The India active pharmaceutical ingredients market is estimated to be valued at US$ 19.9 billion in 2021 and is expected to exhibit a growth rate of 8.3% between 2021-2028. At present, API contributes ~25%  to the Indian pharmaceutical market and the rest is contributed by formulations. The API industry in India is highly fragmented with about 1,500 units.

The Indian pharmaceutical industry is having distinct advantage due to the following factors: (a) Low Manpower cost (Even lesser than that of China); (b) Huge domestic market, high economic growth rate, penetration of health insurance schemes; (c) Availability of large pool of skilled manpower including Scientists, Researchers (PhDs), Biotechnologists, Pharmacists (B Pharm, M Pharm), Lab Technicians, Microbiologists etc.; (d) Favorable policy support of 100% FDI under automatic route for Greenfield pharma. 100% FDI is also allowed in Brownfield pharma; wherein 74% is allowed under the automatic route and thereafter through government approval route.

What are the challenges faced in manufacturing APIs in India?

External Dependence: (a) Key Starting Materials (KSMs) are the building blocks for intermediate chemicals and the final synthesis of API. Raw materials for most of the API intermediates are currently not produced in India; (b) Solvents: Most of the API synthesis involves use of solvents. At present, India has huge dependence on China for the solvents. India is importing most common solvents such as methanol, IPA etc. from China; (c) API synthesis requires chemicals other than KSM and solvents. These can be acid, base, reaction promoter, catalyst, surfactant etc. India currently depends on China for these chemicals as well. India lacks domestic capabilities in fermentation processes to manufacture key intermediates/ KSMs for steroidal APls and China dominates; (d) APIs are other components are primarily imported from China, US, Italy among others. The overdependence makes domestic industry vulnerable to disruptions in supply chain and fluctuations in prices. China’s earlier crackdown on polluting industries, primarily pharmaceutical and chemical industries, had led to a sudden hike in the prices of APIs by 25%-30%, thereby reducing margins for Indian drug makers.

Technology Readiness & Associated Issues: Many of the fermentation-based APls have ceased manufacturing in India due to large installed capacities and economy of scale available in China and high domestic infrastructure and utilities cost. Strain improvement and other process improvements are required for manufacturing APls, which have not taken place in India. As each APIs have specific strain and process requirements, readymade technologies are not available in India for many of the APls. However, the technological and scientific base to develop the strains and processes is available in India. In case of chemical APls, technologies are available for some and the rest could be developed in India with some R&D.

High Comparative Cost: (a) Scale of Manufacturing: Indian APIs are on an average 20% more expensive than those manufactured in China. Augmenting production of APls to match the scale generated by Chinese companies is possible, but it would result in increased production cost and thus could hamper the profitability of pharmaceutical exports; (b) Availability and Cost of Land: MSMEs face challenges in terms of affordability and availability of land; (c) High Infrastructure Cost: Average size of a SEZ in China is 10-15 times bigger than in India, with subsidized land, common waste treatment and utilities, reducing the physical infrastructure costs.

Inadequate Financial Support: The cost and availability of finance in India is extremely high. This is compounded by restrictive banking practices, such as insistence on collateral to extent of 100% of the borrowed funds. Government support is not enough. The Government grant of funds is also extremely slow and long, making the project non-viable. Government funding is focused on ‘innovative products and ideas’, whereas much of the API and intermediates business is generic in nature, which is not supported by the government funding schemes. According to a study conducted by the Indian Pharmaceutical Alliance, the cost of finance in China is about 5% – 7% compared to 11% -14% in India.

Low Profit Margins: Profits margins are higher for Finished Formulations (FPPs) compared to APIs. Hence, pharma companies focus more on FPPs.

Why are the reasons for China’s Competitiveness in Manufacturing of APIs?

The relative advantages of Chinese pharmaceutical companies, in comparison to other countries including India are: (a) Economies of scale of manufacturing plants, Lower capex requirements due to large Special Economic Zones (10-15x the size of Indian SEZs); (b) Easier availability and low capital cost; (c) Ease in obtaining regulatory and statutory permissions; (d) Availability of physical infrastructure such as roads, water supply etc.; (e) Availability of land at comparatively economical rate; (f) Fiscal incentives; (g) Government support for manufacturing; (h) Industry-academia collaboration; (i) Overall business environment and speed of execution; (j) Flexible labor policy; (k) Availability of patented process leading to KSM/APIs; (l) Lower logistics costs owing to predictable inland transportation and well-developed transport infrastructure; (m) Robust R&D sector, China is world leader in Chemical R&D.

The imports from China works out to be cheaper and cost effective for the pharmaceutical companies.

High Dependence on China for APIs UPSC

Source: PwC. High Dependence can have a cascading impact including drug shortages, increased healthcare burden, shutdown of firms and loss of employment.

What steps have been taken by Government to promote manufacturing of APIs in India?

Draft Pharmaceutical Policy 2017: The Draft Pharmaceutical Policy 2017 prepared by the Department of Pharmaceuticals aims to provide a comprehensive policy to ‘guide and nurture pharmaceutical industry of India to enable it to maintain and enhance its global competitive edge in quality and prices‘. The Policy envisages making essential medicines affordable to common people, making the industry self-reliant by promoting indigenous production of drugs, encourage research and development and ensure quality of medicines which are exported as well as consumed domestically. Strategies for realising these goals consist of a variety of mechanisms such as pricing mechanism, compulsory license and FDI.

Umbrella Scheme – Development of Pharmaceutical Industry: The Department had launched an umbrella scheme namely ‘Scheme for Development of Pharmaceutical Industry’ during 2017-18, with an objective to increase the efficiency and competitiveness of domestic pharmaceutical industry; so as to enable them to play a lead role in the global market and to ensure accessibility, availability and affordability of quality pharmaceuticals for mass consumption.

This scheme is a Central Sector Scheme (CS) with a total financial outlay of INR 480 crore for a 3-year period till 2019-20 and comprises of five sub-schemes namely: (a) Assistance to Bulk Drug Industry for Common Facility Centre; (b) Assistance to Medical Device Industry for Common Facility Centre; (c) Assistance for Cluster Development; (d) Pharmaceutical Promotion and Development Scheme (PPDS): (e) Pharmaceutical Technology Upgradation Assistance Scheme (PTUAS).

Scheme on Promotion of Bulk Drug Parks: The Government, in March 2020, approved a scheme on Promotion of Bulk Drug Parks for financing Common Infrastructure Facilities in 3 mega Bulk Drug Parks, in partnership with States. The scheme has financial implication of INR 3,000 crore for next five years. The Government of India is providing Grants-in-Aid to the States with a maximum limit of INR 1000 crore per bulk drug park. Parks will have common facilities such as solvent recovery plant, distillation plant, power & steam units, common effluent treatment plant etc. The scheme is expected to reduce manufacturing cost of bulk drugs in the country and dependency on other countries for bulk drugs.

Production Linked Incentive (PLI) Scheme: It was approved in March 2020. It aims for promotion of domestic manufacturing of critical KSMs, Drug Intermediates and APls in the country with financial implications of INR 6940 crore for next 8 years. The scheme aims to boost domestic manufacturing of APls by attracting large investments in the sector to ensure their sustainable domestic supply. It will lead to incremental sales to the tune of INR 46,400 crore and also significant additional employment generation over next 8 years.

In 2021, the Department of Pharmaceuticals had launched a product-linked incentive (PLI) scheme for pharmaceutical goods and in-vitro diagnostic medical The financial outlay under this scheme is INR 15,000 crore over a period of 6 years.

Champion Sector: In May 2020, the Government, identified Pharmaceuticals as ‘Champion Sector’ along with leather, gems and jewellery, renewable energy, textiles etc. to provide hand-holding for investors with a focus on improving India’s manufacturing capabilities.

High-Level Committee of Experts: A high-level committee of experts has been formed by the Government in May 2020, to recommend reforms in India’s drug regulatory system so that approval processes can be fast-tracked. The committee would study the current drug regulatory system and submit recommendations for reforms to bring the system in line with global standards and make it more efficient.

What should be done going ahead?

Scale and Process: In order to manufacture economically viable APIs, the engineering and scale aspect of technology development should be focused. Creation of mega drug manufacturing clusters with common infrastructure such as effluent treatment plants, steam boilers, power back-up etc. should be the top priority. Additionally, investment in fermentation sector is needed.

Products: Along with production of various catalysts, solvents, reagents and KSMs, recovery and reuse of solvents is also an important aspect to be looked into specially from downstream processing. India should focus on manufacturing antibiotics, amino acids, vitamins, and sartans.

Coordination and Collaboration: Government should encourage Indian companies working in these segments to collaborate for technology development or quick technology transfer. Option of international collaboration can also be explored. Academia-Industry collaborations for innovation need to be strengthened.

Policy Interventions: (a) Towards API security in the country and ensuring uninterrupted supply, national stockpile needs to be built up for generic medicines of critical illness; (b) A National Authority can be constituted for advanced research in chemical drug development and biotechnology based products; (c) Contract Manufacturing Organizations (CMOs) for APIs can be developed in association with academic labs; (d) Early stage Government R&D support should be provided to academia for pilot development of APls, for establishing viability; (e) Creation of new Centers of Excellence for API development region wise; (f) Drugs manufactured through indigenously produced API and intermediates shall be given preference in Government procurement; (g) Customs duty structure for imported APis should be relooked to facilitate indigenous production; (h) Issues relating to land acquisition, ease of doing business, environmental clearances, taxation, etc need to be smoothened and brought at par with best global practices; (i) Single window clearance system and priority license renewal system should be established for companies manufacturing APIs; (j) Adequate investments to be provisioned for manufacturing next generation APIs; (k) Alternate locations (such as Vietnam, Indonesia, etc.) shall be explored for sourcing KSMs/DIs/APIs till developing indigenous capabilities.


India is already one of the largest manufacturer of pharmaceuticals in the world. However, the sector is vulnerable to external shocks due to high import dependence, especially on China, for APIs. The Government should focus on achieving self-reliance in this strategic sector, just like its focus on semiconductor industry. A focused approach with targeted interventions can enable a quick turnaround as domestic industry already possesses expertise on many aspects. Removing import dependence for APIs is necessary to achieve the vision of Atma Nirbhar Bharat.

Syllabus: GS III, Changes in industrial policy and their effects on industrial growth.

Source: The Times of India, TIFAC, PwC

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