Will India Use Coronavirus As An Opportunity To End Dependence On Chinese Drug Raw Materials?

The novel coronavirus disease that started in China and which has almost reached the pandemic level, is threatening another global economic meltdown.

Ideally, globalisation should have led to an interdependent world, to help absorb shocks such as the current one. But it has been reduced to having an over-dependence on China. To be sure, we cannot blame China for this.

Things are not very different for the pharmaceutical industry. Indian pharma companies import raw materials like key starting materials (KSMs), intermediates and bulk drugs worth $4.5 billion. They formulate them into finished dosages before exporting them to other countries. A large proportion of the drugs are consumed in India as well.

China is so critical in the drug supply chain that for drugs like penicillins, India relies 100 percent on imports from that country.

If factories in China do not resume production at full scale in a month or two, we are in for serious trouble.

We may face shortages and sharp price hikes from drugs and medical devices, including face masks and contactless thermometers, among others. That is bad news for consumers, especially in countries like India where there is a high disease burden and spending on drugs is out-of-pocket.

The pharmaceutical industry too is concerned. For the time being, they have convinced the government not to impose export restrictions. They fear that this would not just hit their financials, but reputation as well.

However, how long can they hold the government from swinging into action amid reports of rising paracetamol prices, possible shortages of essential drugs like penicillins, hormones and vitamins?

Opportunity in crisis

Every crisis throws up an opportunity. The novel coronavirus, now known as CORVID-19, has also provided an opportunity to end dependence on China for raw materials.

This might not happen overnight but concerted efforts by industry and government would certainly help de-risking

India’s drug supply chain. Even the US and Europe are looking at India, if it can become an alternate source of raw materials.

For the government, there is not much time to deliberate and form new committees.

The government has already spent years of time on this. In fact, it came out with a Draft Pharmaceutical Policy – 2017, in which it had proposed several incentives to encourage local industries to take up manufacturing of intermediates and bulk drugs.

This included giving preference to formulations produced from indigenously produced active pharmaceutical ingredients (APIs) in government procurement and taking them out of price control for five years.

The government spoke about imposing peak duties on API imports which can be indigenously manufactured.

Additionally, the government said it will support and create an enabling environment to set up mega bulk drug parks having common facilities for pollution control, effluent treatment and single environmental clearance.

There could be some more incentives such as land and utilities at subsidised prices that states could provide. Layers of bureaucracy makes ease of doing business and ‘Make in India’ a distant dream.

With the government tightening environment and safety regulations, we had lost an opportunity in 2018 when the Chinese raw material prices hit the roof.

Industry role

We cannot blame everything on the government. The government already cut corporate tax to 15 percent for new manufacturing companies.

As soon as the crisis ends, the manufacturers have tendencies to go back to their comfort zone of importing raw materials from China.

Some of them who are doing backward integration of manufacturing intermediates are doing it for their own bottom lines and securing supplies.

Unlike other industries such as semiconductors and electronics, technology is not a barrier here. We are also a huge market for drug raw materials.

India was replaced by China because of its low wages, liberal regulatory and environmental regulations.

The Chinese government supported it in the form of infrastructure, cheap loans, low valuation of Renminbi and huge capacities.

The drug price control policy too did not help matters for API companies. But, as many of those advantages do not exist for China now, we need to walk the talk, as the time is running out.-Money Control