India imports around 80 per cent of active pharmaceutical ingredients (APIs) – raw materials required to make finished drugs – from China on volume basis. This is despite the cost of manufacturing APIs being similar in India as well as China, according to a study released by commerce minister Suresh Prabhu on Monday.
“Cost between India and China is highly competitive with only difference of 3 per cent i.e. in labour cost, rest remains in competition with the Indian market. Though the material, depreciation and indirect personnel cost remains the same as of India, there is an upsurge in the imports (of APIs) from China,” stated the study titled – ‘Enhancing Indian exports of pharmaceutical products to China’.
According to the study, the upsurge in imports is due to following reasons: “They (Chinese companies) have huge capacities built up by the government and are now managed by the private industry. There is also significant bank support in the form of loans at negligible interest rates. They also have freedom, in terms of pollution norms and effluent treatment compared to our units.” The commerce ministry and the Indian embassy at Beijing had commissioned this study.
“Most of the dependence is in drug intermediaries and the Chinese have an advantage in built-up capacities… Another major issue is India’s liberal approach in approving registrations for Chinese products. The Chinese take two to five years to approve Indian products and India takes two to five months to approve Chinese products. All these are resulting in a cost differential. When an intermediate product is available at a lower cost, the manufacturer would definitely take it,” the study added.
Concerned over the dependence on Chinese APIs, Centre is planning to incentivise API manufacturing in India. However, Indian pharma companies continue to find API imports from China to be more viable. According to a senior industry executive, Chinese government has taken strict action against some of its API manufacturing plants in last 4-5 months over pollution concerns. “This has lead to a price increase. However, Indian companies continue to be dependent on China for API imports,” he added.
While, drug manufacturing sector in India has an average utilisation rate of 75 per cent and above, API production facilities have a lower rate. “Most regions show a rate of less than 50 per cent. Lower capacity utilisation means low profit levels, and most of the plants in India which cater to local markets run at 30-40 per cent on average,” the study stated.
Capacity utilisation of Chinese API plants is around 70 per cent, as China has developed a system for providing raw materials to small-scale manufacturers from within the industrial estate. “It takes minimum one year to build the estate and produce raw material whereas in India, it takes around three years or more to build estate/factory for raw materials,” the study noted.
China holds a dominant position in the global API industry given its large scale manufacturing capabilities, cost efficiency and adequate availability of commodity bulk drugs and intermediates due to strong technological capability and fermentation. The bulk drugs market in the country has evolved rapidly over the years and it’s largely diversified with around 7,000 API manufacturers.