Reducing API dependence: Have we got the strategy right?
Express Pharma|November 2020
Reji K Joseph,Associate Professor, Institute for Studies in Industrial Development, New Delhi explains that the PLI scheme has some gaps that need to be plugged for it to be truly successful
Reji K Joseph

The Government of India launched two schemes in July this year for the promotion of indigenous manufacturing of active pharmaceutical ingredients (APIs), drug intermediaries (DIs), and key starting materials (KSM). The production linked incentive (PLI) scheme exclusively focuses on those APIs, which the Drug Security Committee constituted by the Department of Pharmaceuticals (DoP) has identified as heavily import-dependent on China. The API Parks scheme, on the other hand, has the objective of enhancing the competitiveness of the Indian API industry by providing easy access to common utilities such as steam, waste management, etc. in three selected API Parks. The industry response to these schemes, however, has been lukewarm especially the PLI scheme. A closer examination shows that the design of these two schemes has some major flaws which may result in much less than the expected outcome in terms of elimination of import-dependence on China.

The history of Indian pharma industry shows that the focus of the private sector has always been on the formulations and not APIs. The Hathi Committee (1975), the recommendations of which laid the foundation of the vibrant generic pharma industry in India, had looked into this issue and found that the capital invested to turnover ratio was much higher in APIs as compared to formulations. It was coercion in the form of marketing approval of formulations tied to the indigenous production of APIs that made the Indian private sector invest in the production of APIs. Withdrawal of this coercion and removal of restrictions on imports through economic reforms in the 1990s again made the private sector to shun indigenous production of APIs.

Another interesting aspect of the dynamics of the Indian pharma industry is that small and medium enterprises (SME) have an important role, especially in the production of APIs. It is reported that they account for 70-80 per cent of the APIs produced in India in terms of quantity. This may sound defying logic, small fellows producing more capital-intensive segments of the pharma industry. But, as APIs are sold in their chemical name, without branding, large firms have no interest in the production of APIs and their focus is on branded formulations. Their production of APIs, if at all, is largely for captive consumption. The SMEs, which are not in a position to establish brands, focus on APIs.

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