Indian Pharmaceutical Industry in the Context of Growing Competition from China

RIS Colloquium on India’s Growing Dependence on Imports in the area of Bulk Drugs

23 December 2014, New Delhi

Dr. Reji K. JosephCentral University of Gujarat

Gandhinagar, GujaratEmail: rejikjoseph@gmail.com

• To what extent we are dependent on China for bulk drugs?

• Is our trade data underestimate the threat from overdependence on imports?

• Is the threat from china only confined to bulk drugs?

Import of Bulk Drugs by India

Year Total Imp. BulkDrugs

Imp. Bulk Drugsfrom China

Import from China % Total

1991 130.5 0.40 0.3

1992 251.0 6.25 2.5

1993 212.2 15.17 7.2

1994 251.0 36.82 14.7

1995 348.1 73.4 21.1

2000 281.1 64.7 23.0

2005 662.4 316.5 47.8

2010 1598.5 913.4 57.1

2012 1908.2 908.9 47.6

Source: Computed from COMTRADE data based on SITC (Rev.3)

0

10

20

30

40

50

60

1991 1992 1993 1994 1995 2000 2005 2010 2012

Share of imports from china in total import of bulk drugs (%)

Risks of growing dependence on china

• In certain categories more than 70% of the requirements are met by imports from China.

• Disruption in supply from china in 2008 – closure of 50 bulk drugs units in India, rising cost of raw materials.

• Y.K. Hamied - “if China decided one bright day to stop export to India, we would be finished. The pharma industry is zero, both domestic and export, and we are looking at that danger objectively”. Similar views expressed by IDMAand IPA.

How china has become competitive in APIs?

• China has become the single largest supplier of bulk drugs to India.

• Cost advantage – theophiline is 10% cheaper if imported.

• Better technologies – use of cauliflower for fermentation whereas Indian firms still use sugarcane.

• Govt. subsidies – electricity subsidy; 13% tax incentives for export of APIs.

Does official estimates convey the real picture?

Production of Bulk Drugs ($mn)

Import of Bulk Drugs ($mn)*

Import % production

2007-08 3434.9 515.1 15.0

2008-09 3562.9 666.0 18.7

2009-10 3650.5 735.5 20.1

2010-11 3925.8 835.9 21.3

2011-12 4368.9 935.7 21.4

Source: Production – IDMA; import – COMTRADE. * calendar year.

Data provided by Dept. of Pharma

• Annual Reports – only provides total export and import data. Not separately available for bulk drugs and formulations.

Efforts to Rectify Issues in Data (Dept. of Pharma) 2010

• The subsequent annual reports incorporated only the revised export estimates. Revised import estimates have not been incorporated in the official estimates.

• Is the current import estimates reliable?

Comparison of trade data

Export ($mn) Import ($mn)

Year Prowess Dept. of Pharma Prowess

Dept. of Pharma

Before Revision

Revised Actual Revised (but not made public)

2004-05 3118.5 3972.6 3832.8 1275.9 698.3 1345.2

2005-06 3672.95017.2

4794.5 1689.71019.6

1824.6

2006-07 5124.25939.7

5668.2 2118.01295.7

2256.8

2007-08 6653.27643.9

7294.7 2601.01673.5

2940.1

2008-09 6543.4 8369.6 8671.8 2537.6 1862.4 3362.4

Data provided by IDMA (Imports)

• IDMA gives a different figure at aggregate level.

• There are issues with consistency of IDMA data.

IDMA (detailed list – 8 digit level) $ mn.

Dept. Pharma$ mn.

2004-05 2768.5 698.3

2005-06 3333.3 1019.6

2006-07 3901.9 1295.7

2007-08 5154.0 1673.5

Total Export (Rs.Mn)

Total import (Rs. Mn)

Trade balance(Rs. Mn)

Aggregate 119250.0 11025.0 108225.0

8-digit 97144.1 88461.0 8683.1

• The data made available by Dept. of pharmaand industry associations do not reflect the seriousness of the problem. In most cases, the import data on bulk drug is not available. The Govt. officials and company representatives, on the one hand, express the serious challenges faced by IPI due to import dependence. But on the other hand, the data reported by the concerned departments and industry associations do not reflect this threat.

Is the threat from Chinese competition limited to bulk drugs segment?

Export destinations of IPI (%)

Europe Africa America Asia Other

2008 31.5 23.3 27.7 16.3 1.3

2009 24.6 23.5 31.8 18.0 2.0

2010 24.0 24.4 34.4 15.0 1.9

2011 24.7 22.3 35.9 14.8 2.0

2012 22.5 21.3 39.6 14.3 2.1

Growth in export of formulations

AAGR %(2003-04 to 2007-08)

AmericaIndia 34.6

China 30.2

EuropeIndia 26.7

China 17.1

AsiaIndia 16.6

China 24.4

AfricaIndia 25.1

China 33.2

Conclusion

• Threat to IPI on account of import dependence and competition from China is real. The import dependence has rooted out domestic bulk drug manufacturing capability.

• The magnitude of threat from import dependence on bulk drugs appears to be grossly underestimated due to issues with estimation procedure. Therefore, a study needs to be commissioned (involving academicians, industry and govt. officials) to gauge the actual situation of import dependence.

• IPI needs to have strategic focus on Asian markets for long term sustenance of exports of formulations.