The United States' potential imposition of tariffs on Indian pharmaceutical exports poses a significant threat to the thriving trade relationship between the two countries. India exports approximately $12.7 billion worth of drugs to the US each year, benefiting from minimal taxation. These exports are critical, as nearly half of all medicines consumed in the US originate from India. The possible tariffs could disrupt this vital supply chain, affecting drug availability and pricing for American consumers, particularly in the context of prescriptions for hypertension and mental health conditions.
India's pharmaceutical sector, the country's largest industrial export according to the Global Trade Research Initiative (GTRI), faces uncertainty. With 87% of raw materials for US-sold drugs sourced primarily from locations outside the US, mainly China, any disruption in Indian exports could exacerbate existing supply chain vulnerabilities. The Indian Pharmaceutical Alliance (IPA), representing India's largest drug manufacturers, has suggested implementing zero duty on US drug exports to maintain a balanced trade environment. Indian firms, which predominantly produce generic drugs on thin margins, may struggle to sustain operations under the burden of steep taxes.
"Manufacturing in India is at least three to four times cheaper than in the US," said Sudarshan Jain of the IPA.
Building new manufacturing facilities in the US presents financial and logistical challenges, with costs reaching up to $2 billion and operational timelines extending from five to ten years. Consequently, shifting production domestically is neither a swift nor cost-effective solution. Despite the cheaper manufacturing costs in India, Prime Minister Narendra Modi's government recently exempted 36 life-saving drugs from basic customs duty in an effort to mitigate potential impacts on domestic healthcare.
The prospect of tariffs has sparked concern among industry experts and stakeholders. Ajay Bagga, a veteran market expert, emphasized the potential benefits of eliminating tariffs on pharmaceutical goods to preserve and enhance trade relations. In contrast, Umang Vohra, CEO of India's third-largest drug firm Cipla, highlighted the long-term risks associated with fluctuating tariffs.
"because there is a risk that four years later, those tariffs may go away," commented Umang Vohra.
The financial head of a leading Indian drugmaker underscored the importance of the US market for India's pharmaceutical exports:
"It is the fastest growing market and most crucial. Even if we increase exposure to other markets, it will not adjust for any loss in the US market."
Despite these challenges, savings from Indian generics amounted to a substantial $219 billion in 2022 alone. However, without a trade agreement, former President Trump's tariffs could render some Indian generics unviable, potentially forcing companies to exit segments of the market and intensifying existing drug shortages. Mark Linscott, former assistant US trade representative, acknowledged the short-term difficulties but expressed optimism for progress towards a trade agreement later this year.
"In the short term, there may be some pain through new tariffs, but I think they'll make significant progress by the fall of this year for a first tranche [trade] agreement," stated Mark Linscott.
As India looks to safeguard its pharmaceutical exports, the impact on US drug exports into India remains minimal, amounting to just half a billion dollars. This imbalance underscores the need for strategic negotiations and collaborations to ensure mutual benefits for both nations.