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Indian pharmaceutical companies are brainstorming to weather the US tariff storm, even though medicines remain exempt from the US levy for now.
Several companies that Business Standard spoke to said they were engaged in scenario planning, evaluating mid- and long-term strategies such as setting up offshore manufacturing, securing raw material from multiple sourcing, and exploring contract manufacturing options within the US.
The Nifty Pharma index fell in early trade but recovered during the day to close in the green. However, Aurobindo Pharma’s stock ended lower, while most pharma stocks clawed back losses seen in the morning session.
On Wednesday, US President Donald Trump announced an additional 25 per cent tariff on Indian imports in response to New Delhi’s continued purchase of Russian oil, taking the effective tariff to 50 per cent. Pharmaceuticals, however, have been excluded from the latest US Executive Order, as the sector is under review as part of an ongoing Section 232 investigation.
On April 14, the US Department of Commerce’s Bureau of Industry and Security (BIS) initiated the Section 232 investigation into the pharma sector to gauge the impact of specific imports on the US economy, and thereby restricting such imports.
The Indian industry feels that generic medicines are “important for affordable health care in the US” and typically operate on razor-thin margins, ensuring consistent availability is vital for patient care.
“The India–US partnership is critical to securing API supply chains and enhancing health care resilience,” said Sudarshan Jain, secretary general of the Indian Pharmaceutical Alliance.
An executive director at a leading Indian drug company with a strong presence in the US said generics were all about access to affordable medicines, and India was all about low-cost manufacturing. “China is not interested in generics, and there’s no viable alternative to India for the US but India,” he said.
He said companies were actively exploring ways to safeguard their interests, especially as the US accounts for 35 per cent of India’s total pharma exports.
“In the short term, discussions are around how much of the tariff, if imposed, can be passed on to buyers. This will vary greatly across molecules. In those molecules where some Indian players will slash prices, others may find them unviable and exit, leading to drug shortages in the US,” he said.
Another option being considered is whether it is prudent to have offshore manufacturing.
“Indian companies are studying whether shifting some production to the US. Some already have a presence there, but such moves come with a gestation period,” said another industry veteran.
He pointed out that the cost of conversion (turning raw materials into finished products) is 3-4 times higher in the US due to manpower costs, which account for around 70 per cent of the conversion cost. “If one shifts manufacturing to the US, the overall cost of production goes up 1.5-times vis-à-vis India,” he said, adding that companies are considering contract manufacturing.
“One option is to split production — carry out processes A to X in India and complete processes Y and Z in the US,” said the official.
Another idea floating in Indian pharma circles is aligning more closely with the EU.
“It does not make sense to have manufacturing in every country as Europe cannot be painted in a single brush. However, whether India should align with the EU and increase footprint in order to mitigate risks and exposure to the US is being actively considered,” said the source. One advantage of that could be that US-EU tariffs could be very different from India-US tariffs.
Ensuring raw material supplies is another priority. “If tariffs are imposed, Indian exporters cannot be replaced overnight. But they will be in a disadvantageous position. China may raise bulk drug prices opportunistically. Companies are actively working on diversifying sourcing,” said one exporter.
India supplies over 40 per cent of generics used in the US, including drugs for chronic conditions, cancer, and infectious diseases.
“Tariffs on Indian pharma would be counterproductive and burden American consumers. Indian firms don’t make high-margin products — they make affordable generics. Any additional cost will be directly passed on to patients,” said Namit Joshi, chairman, Pharmexcil.
He added that replicating India’s pharmaceutical manufacturing capabilities would take at least 3-5 years, given the scale, cost-efficiency, and talent required. “India has over 700 USFDA-approved facilities and reinvests about 12 per cent of industry earnings into compliance. Around 55 per cent of Indian pharma exports go to tightly regulated markets like the US, UK, and EU,” Joshi said.
The reason behind jitters in the pharma circles is Trump’s statement around a probable 250 per cent tariff on pharma imports in future. It looks highly unlikely though.
“A 250 per cent tariff is economically unviable and commercially absurd. Even the hint of such a move sends shockwaves across a sector where India is a dominant generics supplier. Anything beyond 25 per cent is a red line,” said Nirali Shah, pharma analyst, Institutional Research, Ashika Group.
“Indian companies won’t absorb that kind of cost. They’ll either cut volumes, exit the market, or pass on the cost. This isn’t protectionism. It’s self-sabotage. Right now, it’s sentiment-driven damage, but if this threat lingers, it could fracture a deeply interdependent supply chain,” Shah added.
