The Active Pharmaceutical Ingredient (API) industry serves as the backbone of the global pharmaceutical sector, providing the essential components required to manufacture lifesaving drugs. However, the journey of India’s API industry has been a combination of achievements and significant challenges.
India accounts for around 20% of the volume of the global supply of generic APIs, the second largest supplier after China, earning it the title of “Pharmacy of the World”. India’s competitive edge in API manufacturing stems from factors such as a large pool of skilled labor, robust research and development capabilities, and a cost-effective manufacturing environment. India’s API manufacturers cater to both domestic and international markets, supplying a wide range of therapeutic categories. The industry has also witnessed a surge in demand for complex APIs and novel drug delivery systems, reflecting its evolving capabilities and focus on innovation.
The global API market size was estimated at about $255 billion in 2024 and is projected to grow at a compound annual growth rate of 5.85% from 2025 to 2030, according to Grand View Research. India holds an 8% market share in the global API industry with more than 500 different APIs being produced, accounting for 57% of the APIs on the WHO prequalified list. India also accounts for 31% of the total API manufacturing facilities globally (A statistic last updated in 2018).
India stands at a pivotal moment, favored globally as a manufacturing partner, with several opportunities supporting significant growth in API volume production.
Rising Global Demand
The demand for pharmaceuticals and APIs is exponentially increasing due to factors such as an aging global population, an increase in the prevalence of chronic diseases, and growing healthcare requirements. India can use its low-cost manufacturing to meet the growing need for inexpensive pharmaceuticals in both developed and developing countries.
Cost-Effective Manufacturing
India’s API manufacturing industry is well known worldwide for producing high-quality APIs at a far lower cost than other countries. The availability of skilled yet cost-efficient labor and large-scale production facilities in industrial hubs like Hyderabad, Gujarat, and Maharashtra, allow manufacturers to achieve lower costs through bulk production. Also, a weaker Indian Rupee makes exports more cost-competitive.
Regulatory Compliance
Approvals from regulatory authorities like USFDA, EMA, and WHO enhance Indian manufacturers’ credibility globally. Streamlining domestic regulations to align with ICH guidelines is further reducing entry barriers.
Geopolitical Stability
India maintains robust trade relationships with major pharmaceutical markets such as the US, Europe, and Japan. Also, the geopolitical situation following COVID-19 has led global consumers to minimize their reliance on single-country suppliers such as China, India being a viable alternative.
Skilled Workforce
Every year, India produces a substantial number of science and engineering graduates, offering a consistent supply of skilled professionals for API manufacturing. Renowned institutions like IITs, NIPERs, and IISERs play a crucial role in producing industry-ready talent with specialized knowledge in pharmaceuticals and APIs.
India’s API industry shows strong potential for continued volume growth, but competition from China remains significant. Gaining control over the entire supply chain is critical for India to compete on price. To support this, the Indian government has introduced initiatives like the establishment of three bulk drug parks with an investment of ₹14,300 crores ($1.96 billion) and an additional ₹197,000 crores ($26.58 billion) allocated to the pharmaceutical PLI scheme. While these measures aim to reduce reliance on imports and strengthen domestic production, their effectiveness, and China’s response will only become clear over time.
Along with China, we also see Vietnam potentially coming up as a competition in the future. Vietnam offers some of the lowest labor costs in Asia and its government in its current amendments in laws and regulations has removed bottlenecks to attract FDI in the pharmaceutical industry.
This raises the question of whether cost competitiveness alone is sufficient for India to sustain its position in the global API industry. While India contributes a significant portion to the global API manufacturing capacity and volume, the question remains:
Where does it stand in terms of value?
We should actively prioritize strategic, forward-looking, and technology-driven areas that offer potential for value creation and sustainability, leveraging the advantages of being a first mover. A noteworthy example is Taiwan, which has focused on producing high-value APIs for niche and complex therapeutic areas such as oncology, central nervous system (CNS) disorders, and biologics. By concentrating on innovative drug APIs rather than generics, Taiwan effectively captures high-margin segments of the market.
Currently, many Indian manufacturers emphasize mass production over innovation, which limits progress in developing high-value APIs like biologics and specialty drugs. Additionally, India lags in adopting advanced technologies such as continuous manufacturing, green chemistry, and modernized infrastructure. It is imperative to address these gaps now, ensuring that the Indian pharmaceutical industry maintains a balance between innovation, competency, and cost-effectiveness.
There are challenges that warrant careful attention as we progress toward growth. These challenges particularly affect Indian SMEs, which play a crucial role in determining India’s ability to compete on a global scale.
Regulatory Hurdles
For Indian API producers, particularly those aiming for international markets, maintaining regulatory compliance is a persistent challenge. India is home to the largest number of US FDA-approved manufacturing facilities outside the US, but this also makes Indian facilities subject to frequent inspections. Adhering to foreign regulations requires significant investments in upgrading infrastructure and the smaller API manufacturers in India often struggle to afford these costs, leading to their exclusion from such markets.
Financial Constraints
The establishment of an API manufacturing facility requires a substantial investment in technology, infrastructure, and regulatory protocols. A large percentage of the industry is composed of up of small and medium-sized businesses (SMEs) who face challenges in securing loans or government subsidies.
Challenges in Entering the US High-Value API Market
The US market is increasingly shifting toward high-value and specialty APIs, including those used in biologics, oncology, and personalized medicine. However, as of 2023, India accounted for only 4% of global biologics API production, emphasizing its limited presence in this high-margin segment. The BIOSECURE Act, a U.S. legislative proposal aimed at restricting federal contracts with specific Chinese biotechnology firms, passed the House of Representatives in September 2024 but stalled in the Senate. This delay postponed potential opportunities for Indian API manufacturers to expand their footprint in the U.S. biologics sector.
India’s API industry stands at a critical juncture, balancing vast opportunities with pressing challenges. By fostering innovation, enhancing regulatory compliance, and addressing financial constraints for SMEs, India can solidify its position as a global leader in pharmaceuticals. Expanding into custom synthesis and niche APIs presents additional growth potential, especially as global companies adopt a China+1 strategy. However, staying ahead in a competitive market requires a shift from cost-based strategies to technology-driven and value-focused growth. With strategic foresight and focused investment in innovation, India has the potential not only to sustain but to lead the global API market, setting new benchmarks in quality, value, and sustainability.
Author
Sonali Agrawal
Head of Business Development & Marketing
Macsen Group
Article Published in: Pharma Bio World January 2025 Issue – Drug Delivery