23-09-2013, 04:51 PM
Pharmaceutical Industry
Introduction
The Indian pharmaceutical industry ranks among the top five countries by volume (production) and accounts for about
10% of global production. The industry’s turnover has grown from a mere US$ 0.3 bn in 1980 to about US$ 21.73 bn in
2009-10. Low cost of skilled manpower and innovation are some of the main factors supporting this growth. According to
the Department of Pharmaceuticals, the Indian pharmaceutical industry employs about 340,000 people and an estimated
400,000 doctors and 300,000 chemists.
Industry structure
The Indian pharmaceutical industry is fragmented with more than 10,000 manufacturers in the organised and unorganised
segments. The products manufactured by the Indian pharmaceutical industry can be broadly classified into bulk drugs
(active pharmaceutical ingredients - API) and formulations. Of the total number of pharmaceutical manufacturers, about
77% produce formulations, while the remaining 23% manufacture bulk drugs. Bulk drug is an active constituent with
medicinal properties, which acts as basic raw material for formulations. Formulations are specific dosage forms of a bulk
drug or a combination of bulk drugs. Drugs are sold as syrups, injections, tablets and capsules.
SMEs in the pharma industry
According to the Confederation of Indian Industries (CII), there are around 8,000 small and medium enterprises (SME)
units, accounting for about 70% of the total number of the pharma units in India. Indian SMEs are also opening up for
emerging opportunities in the pharmaceutical industry in the field of CRAMS, clinical research etc. These would drive
them to play a definitive role in the transitional global pharmaceutical environment, where a sizeable number of drugs are
expected to go off patent in the coming years. The Indian government has been making every attempt to support SMEs
through several incentives. One such effort is the development of SME clusters in various parts of the country.
Investment in the Indian pharmaceutical industry
100% foreign direct investment (FDI) is allowed under automatic route in the drugs and pharmaceuticals sector, including
those involving use of recombinant technology. Also, FDI up to 100% is permitted for brownfield investments (i.e.
investments in existing companies), in the pharmaceuticals sector, under the Government approval route. The drugs and
pharmaceuticals industry attracted foreign direct investment to the tune of US$ 9.17 bn for the period between April 2000
and January 2012.
Major challenges faced by the industry
The Indian pharmaceutical industry was on a strong growth trajectory in the last decade. It has achieved several milestones
and is well positioned to leverage emerging opportunities. However, the industry needs to tackle various issues related to
its operations and regulations. It faces several challenges in the form of pricing of pharmaceutical products and impact of
some agreements. This section touches upon several key issues and challenges faced by the industry:
• Impact of GATT-TRIPS agreement: The General Agreement on Tariffs and Trade1 (GATT) and Trade Related aspects of
Intellectual Property Rights2 (TRIPS) have an adverse impact on pricing of pharmaceutical products. Pharmaceutical
companies are not allowed to re-generate existing drugs and formulations and change the existing process and
manufacture the same drug. New investments are required to perform research. This is a major obstacle for pharma
companies, especially the micro, small and medium enterprises. Moreover, transfer of technology from abroad is difficult
and expensive. Consequently, revenue of the pharma companies is impacted. Hence, adequate measures should be
taken to support the industry’s revenue and minimise losses.
• Pricing: At present, pricing of 74 bulk drugs and their formulations, which account for a large share in the retail pharma
market, are controlled by the Drug Price Control Order (DPCO)-1995. The Government had considered reducing the
number of regulated drugs, but it has not been implemented. There is a need to reduce the number of regulated drugs
to facilitate the growth of the pharmaceutical industry.
• Drug diversions by institutions: Most of the institutional clients of the Indian pharmaceutical companies comprise
government hospitals, the Indian defence service and private hospitals; the defence sector is mandated to buy drug stocks
through tenders in quantities twice as large as the projected demand for those drugs in the following year at a discounted
price. At the year-end, surplus available at the institutions is pushed to regular channels by leveraging the price discounts,
resulting in a loss for companies through the regular distribution channel.