ALSO READChina's Guangzhou port says coal imports operating normally after storage halt ISSDA hails duty on flat steel imports from China China's Guangzhou port halts coal imports - sources China's Xi says to accelerate market opening, expand imports: media China's Xi says to accelerate market opening, expand imports: state radio
India Ratings and Research (Ind-Ra) expects India to remain dependent on imports for its active pharmaceutical ingredients (API) requirements at least in the medium term. The expectation is based on the country's inadequate API manufacturing infrastructure and government's insufficient policy support.
The draft policy 2017 emphasises reducing API imports (60% of the total requirement) through indigenous drug manufacturing. Around half the imports are from China. However, low profitability, high capex and working capital requirements, and price competition are the major deterrents.
China has a competitive edge globally in API manufacturing, with exports growing at a CAGR of 4.13% during 2012-2016. Less stringent environment norms have enabled large-scale production in the country, making it a market leader. However, China's revamped environment environmental protection law to control pollution may disrupt production in many unorganised API manufacturing units. In such case, import-dependent countries especially India would be majorly affected.
Among the top emerging and developing economies, India is a major importer of bulk drugs from China at 54%, followed by Indonesia at 24%, Brazil at 12% and South Africa at 8%. Given most of the developed markets import in the range of 2%-3% from China and the reasons mentioned above, India is unable to scale its production capacity.
To reduce India's import dependence, the Katoch Committee in 2015 suggested reforms such as setting up of mega bulk drugs park in five to six states with financial aid from the centre and state governments, reviving public sector units and offering tax benefits for R&D spend.
However, the recommendations are yet to be implemented.
Additionally, the draft policy document states imposition of the peak customs duty on imports of all API which can be manufactured locally. Against the backdrop of challenges to local manufacturing and falling industry margins, the agency expects a further contraction in EBITDA margins if the recommendation is implemented and assuming all the currently imported APIs can be indigenously developed. Moreover, with heavy reliance on imports, the increased customs duty might not discourage imports but rather would increase drug prices.
Ind-Ra believes though the promotion of domestic manufacturing of API is justified, the government's push towards domestic production should be complemented with support in terms of infrastructure and policies conducive to business growth.
The initiative to discontinue loan licensing or contract license could have two possible implications: first, the companies would incur capex and set up their own manufacturing units; secondly, there will be backward integration. Ind-Ra opines both of the events are unviable given the companies will not be able to match the cost efficiencies of contract manufacturer organisations (CMOs). Also, many CMOs manufacture drugs for different companies under one licence so the integration becomes complicated. Furthermore, most of CMOs fall under the MSME category, constituting 25% of the total market; thus, the implementation of this initiative could have a major negative impact on the market.
Another initiative of prescription of drugs by generics, not by brand will leave the patients at the mercy of the pharmacists as they will be motivated to sell high-margin drugs. Fixed dose combinations and patented drugs can be sold as branded drugs; hence, this may allow companies to modify generics and sell drugs as fixed dose combinations in varying combinations. The agency expects laws enabling pharmacists to substitute the prescribed branded medicines with suitable generics should be introduced to address this issue before the initiative is implemented.
Powered by Capital Market - Live News
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)