Opinion

Can the pharma sector regain lost ground?

KT Rama Rao | Updated on August 17, 2020

This would entail becoming as cost-competitive as China. Initiatives like Hyderabad Pharma City are crucial to achieve this

The global Covid-19 pandemic has cascaded into a humanitarian crisis more than an healthcare and economic one. India, as the “Pharmacy of the world”, stands to play a vital role as the largest supplier of generic medicines (22 per cent of world consumption) as well as vaccines ( around 60 per cent per cent) to the world.

While the rest of the world is looking at India to produce at scale and supply drugs/vaccines to the patients, the nation is grappling with its own challenge of containing the rapid spread of Covid-19 infection.

Despite the disruptions in supply chains, shortage of labour around the world, India has demonstrated its resilience and dependability in producing and supplying essential medicines at high-quality and affordable cost.

The Indian pharmaceutical industry is set to be a potent actor on the world stage; however, it is critically dependent on imports (close to 70 per cent) from China for its raw materials, particularly the Active Pharmaceutical Ingredients (APIs) and other key raw materials.

Various geopolitical factors pose a serious threat to not just India but to the pharmaceutical supply chain of the world. The supply of the raw materials was also interrupted previously during the Beijing Olympics (2008), Doklam crisis (2017), and Blue Skies policy (2018), among others.

Until the late 1980s, India was self-sufficient in APIs and manufactured most of its pharma raw materials domestically. However, over time, the manufacturing of APIs shifted to China owing to factors like lower operating costs (primarily subsidised by government), unfavourable pricing policies in India, among others.

Consequently, the Indian industry started relying on imports. For instance, we imported ₹203 crore worth APIs for Gabapentin, an anti-epileptic drug used in nerve pain, from China in 2019 despite having 3x capacity to manufacture domestically (Source: KPMG-CII Report 2020).

The cost advantage of importing from China is at least 20 per cent, even after taking into account the customs duty impact. China had strategically promoted and supported KSM (key starting materials)/API manufacturing with clusters of unprecedented scale featuring all scientific and environmental infrastructure, subsidises in terms of power, water, steam, access to low-cost capital, among others. China has also benefited from its rich resources of coal deposits, lime deposits, chemical and petrochemical industries, which are the starting materials of the pharmaceutical industry.

 

 

Estimates suggest that the cost of production in China is about 30 per cent cheaper than in India and China used this advantage to emerge as the global market leader, and creating a monopoly.

The health security threat posed by this dependence on imports was long recognised in the country and the government had constituted a committee under the chairmanship of VM Katoch (former Secretary to the Government of India and Director General, ICMR) to propose ways to reduce imports.

The committee, in 2015, recommended establishment of six mega parks of about 2,000 acres each with sufficient funding to set-up common environmental infrastructure, income tax rebate for 10 years, and access to soft-loans at 7.5 per cent, among others. However, little progress was made in this direction until recently.

Pharmaceutical cluster

As a State committed to the pharmaceutical sector, Telangana, under the leadership of Chief Minister K Chandrasekhar Rao, had envisaged in 2015 the establishment of a pharmaceutical cluster of global scale called Hyderabad Pharma City (HPC), in a bid to improve the cost-competitiveness of the pharmaceutical industry in India.

Telangana already contributes to about 40 per cent of the domestic pharma production and is referred to as the “Bulk Drug Capital” of the country.

Hyderabad Pharma City, in an area of about 19,000 acres, will be the world’s largest pharmaceutical cluster co-locating the entire value chain of the industry so as to benefit from scale, synergy and agglomeration.

This is perhaps the first time a park of this size in India will feature district heating plants, district cooling plants, etc., in addition to basic infrastructure like roads, power, water, and also a common effluent treatment plant.

A world-class university focussed on pharmaceutical sciences is an integral part of the pharma city, as the presence of such an institution embedded in the industrial city has the potential to accelerate innovation in the sector and also help companies move up the value chain.

 

As a result of the synergies and scale, it is estimated that the cluster will help companies optimise their capex and opex by 30-35 per cent leading to their cost of manufacturing being on a par with or even better than China’s. This is particularly beneficial to MSMEs, which are the backbone of our economy. About 90 per cent of the pharma units in Telangana and India are MSMEs.

Undoubtedly, the recent turn of events have presented an unprecedented opportunity for the pharmaceutical sector in India to relook and rebuild. The industry is in desperate need to be further nurtured and the clarion call by Prime Minister Narendra Modi to become “aatmanirbhar” (self-reliant) is timely.

The Central government has also launched new schemes — establishment of bulk drug parks, production linked incentives (PLI), etc — which have the potential to go a long way in promoting pharmaceutical manufacturing and further strengthening India’s leadership position in the sector, if implemented effectively.

However, it is imperative for the country to take a holistic view and proactively support the industry by creating an enabling environment with lower operating costs, predictable and consistent policies, streamlined regulatory framework, access to low-cost capital, etc. The success of initiatives such as Hyderabad Pharma city is crucial to the success of the sector as a whole. A mission mode and multi-dimensional approach will be required to add impetus to the sector’s growth.

The writer is Industries and IT Minister, Govt of Telangana

Published on August 17, 2020

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