'Scenario building' in Indian Pharma Inc ahead of US tariff announcement

“We have been waiting and watching closely for the past few weeks. Once the announcement (on tariffs) comes, there may be industry meetings,” says the managing director (MD) of a leading pharmaceutical (pharma) company that exports to the US. His words sum up the mood in Indian Pharma Inc on Wednesday, a day before Washington is set to announce tariffs on several goods categories across various countries.

 

Pharma products have been on the radar of US President Donald Trump, who has indicated that tariffs of up to 25 per cent could be imposed on this sector. The extent of the tariff on Indian pharma exports remains unclear, especially if the US adopts a reciprocal approach — India currently imposes tariffs of 5-10 per cent on drug imports. Indian pharma exporters, however, supply 47 per cent of the generic medicines consumed in the US.

 

Industry weighs its options

 

‘Scenario planning’ has been underway in the pharma industry.

 

“We have been monitoring the situation closely. No business or strategic decisions can be taken until there is clarity, but we are trying to understand how the value chain will adapt to this move,” says a senior executive at a Gujarat-based firm.

 

He explains that if an Indian exporter sells a drug at $1 to a distributor, by the time it reaches pharmacies, the price is already $10, with the final retail price even higher. “There is a substantial distributor margin, and whether the US will look at reducing that is something we will have to watch,” he adds.

 

The domestic industry has not yet decided whether to pass the tariff burden on to US buyers. The decision will depend on the magnitude of the increase. Another industry veteran points out that not all exporters may adopt the same approach.

 

“Each company will act in its own best interest,” he says, implying that some manufacturers may absorb the tariff or optimise costs to maintain competitive pricing. 

 

Rush to shipments ahead of tariffs 

Some exporters have accelerated shipments to the US over the past one to two months in anticipation of the tariffs, according to industry sources. The exact volumes remain unclear.

 

“Some players have been sending extra consignments to US shores to create a buffer ahead of the tariff announcement,” an industry insider says.

 

Once the tariff structure is clear, senior executives are expected to convene, as the US remains India’s largest export market, accounting for one-third of total drug exports.

 

India must negotiate from ‘position of power’

 

India should negotiate “hard” with the US from a “position of power'”, argues Uday Bhaskar, former director general of the Pharmaceuticals Export Promotion Council of India (Pharmexcil).

 

“When it comes to generics, there is no alternative to India. We are in a strong negotiating position with Washington. President Trump is unpredictable, but if the US is exercising its economic power, we should leverage our position as the largest supplier of generics to the US,” he says.

 

India supplies 47 per cent of generic drugs to the US, followed by US-based firms (30 per cent), West Asian countries (11 per cent), and Europe (5 per cent). This gives India a degree of insulation from severe adverse consequences. Reflecting this, the Nifty Pharma index ended Wednesday in the green, up 0.87 per cent.

 

Calls to eliminate import duties on drugs

 

Pharma industry lobbies have urged the Indian government to eliminate import duties on drugs to mitigate the impact of reciprocal tariffs. A senior industry veteran involved in discussions with government officials said last month: “We export $8.7 billion worth of pharmaceuticals to the US while importing just $800 million. Almost 50 per cent of those imports are duty-free, while the rest attract duties of 5-10 per cent. If we eliminate these duties, any reciprocal US tariff on our exports would also drop to zero.”

 

Potential supply chain disruptions

 

A disruption in India's pharma exports could lead to drug shortages in the US. “Shifting manufacturing to the US would make bulk drug procurement more difficult and expensive, leading to shortages in the medium term," warns the MD of the South-based company quoted earlier. He adds that this would also drive up the cost of finished products.

 

According to the American Society of Health-System Pharmacists, drug shortages in the US stood at 271 in the third quarter of 2024, down from a record 323 in the first quarter of 2024.

 

The rise of distributed manufacturing

 

A shift towards ‘distributed manufacturing’ — producing drugs across multiple locations, possibly outside India — is expected over the next five to 10 years, industry leaders observed at a recent summit.

 

Cipla MD and global chief executive officer Umang Vohra explains that manufacturing has traditionally been concentrated in low-cost locations. However, as countries push for self-sufficiency in pharma, companies and governments are seeking a more balanced approach to tariffs.

 

“Technology transfer functions will begin to change. We’ve historically operated in one cultural and linguistic environment, but we’re now moving towards more distributed manufacturing,” he says.

 

Sun Pharmaceutical Industries Chairman and MD Dilip Shanghvi points out that for manufacturing to be viable, it requires a minimum production volume and consistent output. “Without that, efficiency suffers. There are multiple challenges in localising manufacturing,” he says, adding that most India-made generic drugs cost between $1 and $5 per unit, making relocation unviable.

 

THE TARIFF DIAGNOSIS: PHARMA’S NEXT STEPS

 

·         Senior leaders are likely to meet after tariff clarity

 

·         Companies to maximise their value

 

·         US shipments surged ahead of tariffs

 

·         India must negotiate from a position of power

 

·         Impact hinges on value chain shifts, big players’ moves

 

·         US drug shortages loom if supply chain falters