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Can India's pharmaceutical industry be decoupled from China?


On July 4, India Express, an Indian media, published an article on whether India's pharmaceutical industry could "decouple from China". RORY HORNER is a senior lecturer at the Institute for Global Development at the University of Manchester, UK.

The article said that in India, any decoupling from China must be strategic, require a lot of policy support, and be localized rhythmically. Temporary or reactive decoupling may interrupt the production of many drugs in India, as these APIs come from China.

The following are the main contents of this article:

Background of "decoupling from China"

Due to the recent political tensions between the two countries, India is increasingly demanding a boycott of trade with China. However, this possible move has attracted the attention of the Indian pharmaceutical industry, which has also attracted global attention due to the global dependence on Indian drug supply.

When production is organized through the global supply chain, the cost of boycotting or banning trade is particularly high, as is the case in the pharmaceutical industry. Although India is the third largest producer of finished drugs in the world, it largely relies on China to provide the supply of API, which is the key ingredient in drug production. It is estimated that 70% of the API of Indian pharmaceutical industry comes from China. For some drugs, such as paracetamol and ibuprofen, the dependence is almost 100%. India's control of the environment and its competition with China have intensified this dependence on imports, because China has higher production and lower costs. Therefore, according to Pharmexcil, the revenue of the Indian pharmaceutical industry in the fiscal year 2018-19 is 40 billion US dollars, and restricting or prohibiting the import of APIs will cause significant damage to the Indian pharmaceutical industry.

The impact of "decoupling from China"

This prospect is particularly concerned by potential patients. The annual export of Indian drugs is nearly 20 billion dollars. If the production shrinks seriously, it will affect the access of Indian and even global drugs. Low - and middle-income countries are increasingly relying on India to provide affordable medicines, with a particularly serious impact. In fact, in many African countries, India has provided nearly 50 per cent of drugs by value, and even higher percentages in terms of quantity.

Some people in India tried to prove that the trade boycott against China was correct, pointing out that the transformation of Indian pharmaceutical industry from a foreign dominated industry to an industry controlled by Indian companies had begun. Indeed, the market share of foreign multinationals in India dropped sharply from 80-90% in 1970 to 50% in the early 1980s, and now it has dropped to 23%. In addition, the price of drugs in India fell from the highest country in the world to the lowest country.

However, the Indian pharmaceutical industry did not develop through sudden decoupling from foreign transnational corporations, complete boycott or prohibition of imports. The Indian Patent Law of 1970 abolished the product patent protection of drugs, which is widely praised for promoting the development of Indian industry. India also benefited from the Foreign Exchange Administration Act 1973 (FERA) and the subsequent New Drug Policy (1978), which restricted, but did not prohibit, the activities of foreign multinationals in India. As a result, a series of policy initiatives have succeeded in tilting the balance in favour of Indian owned companies.

China and the global pharmaceutical industry

At the initial stage of the COVID-19 pandemic, many people worried that China's supply of APIs to India would decline due to China's blockade. Although these concerns have not yet been realized, the Indian government has taken measures to promote more API production in the country. In March, the government announced that it would invest 30 billion rupees to develop three API parks, and invest 69.4 billion rupees in 53 API manufacturers in the next eight years. The forward-looking plan to increase the production of domestic APIs and reduce dependence on China is an understandable and wise policy goal. Despite the relative decline in recent decades, India has a stronger starting point than most countries in view of the continued production capacity of some APIs. For example, Indian companies have the capacity to produce COVID-19 therapeutic drugs, including Remdisivir.

Other countries are also seeking to reduce their dependence on China, especially the United States. It has always been worried about the impact of such dependence on health and safety, including the possibility of China limiting its drug exports during the crisis. In May this year, the Trump government announced that it had signed a contract of 354 million dollars with the new company, Philip Corp., for the production of generic drugs and APIs. Therefore, the United States is also seeking greater self-reliance, but this did not immediately resist. In fact, even in the context of the Sino US trade war, the United States also excluded drugs and some related products from the tariff increase.

Reducing dependence on China will not be easy. In India, any decoupling from China must be strategic, require a lot of policy support, and be localized in a rhythmic manner. Temporary or reactive decoupling may interrupt the production of multiple drugs because these APIs come from China. A British study recently found that the steroid dexamethasone can significantly improve the survival rate of COVID-19, which is a famous example. Other drugs include painkillers, such as paracetamol and ibuprofen, and antibiotics, such as penicillin.

Therefore, in the short term, boycotts or bans will have adverse effects on Indian industry, and will also affect the access of Indian nationals and other countries to urgently needed drugs. In the long run, reducing dependence on China also needs to be treated with caution strategically.

Ref:Reducing dependence on China would be prudent for India’s pharmaceutical industry, but it must be strategic. Rory Horner | Updated: July 4, 2020, The Indian Express

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