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Factors affecting import & exports in India
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Amrit Karmarkar, Neha Sawant
December 12 , 2014
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Abstract
Recent global meltdown, rise in demand of quality medications with low cost, environmental compulsions, divestment strategies to move towards low cost contract manufacturing and increase in attitude towards more research-oriented products caused EU and US companies to outsource their activities to emerging nations. Advantage of emerging countries is regulatory compliance as per developed world, low-cost delivery of products and services and expertise in manufacturing of products as per demand. Out of emerging nations, particularly India and China are gaining major market share in world as of now. As more than 200+ manufacturing plants are US FDA approved and located in India, it is of utmost concern to the world to get medicines at best price and with best quality. This overview article will focus on import and exports scenario in the current year.
Market overview: Facts and figures
As per MarketLine Advantage Report October 2012, the Indian pharmaceuticals market achieved growth rate of 17.6% in year 2007 to 2011. In the next five years, anticipated CAGR will be 17.2%. India accounts for 6% of total Asia-Pacific market value. Cipla is a leading player in the market followed by Ranbaxy. Recently Ranbaxy has been taken over by Sun Pharmaceuticals Ltd. India is among the top five pharmaceutical emerging markets. India's pharmaceutical sales were $22.6 billion in 2012 and are expected to reach $27.0 billion in 2016. India's export of pharmaceutical products showed increase from $290,623.15 (FY2012-FY2013) to $302,576.76 (FY2013-FY2014) while showed decrease in import $483,553.89 to 443,395.80 for same financial years.
Factors affecting Indian market
Before looking into actual figures of import and export, it is necessary to understand, transitions of Indian pharmaceutical industry since Independence. Following table illustrates the fact:
The growth of life sciences and health care industry in India is the result of various socio-economic factors, greater expansion in rural market as well as increased sales of generic medicines, and continued growth in chronic therapies. Other growth promoting factors like enhanced health awareness, changing lifestyles resulting in higher incidence of lifestyle diseases, increased coverage of health insurance, increasing government expenditure on healthcare sector. The sector is mainly powered by exports, with the US being a dominant market (16.88%) followed by Nigeria (8.67%), according to InfodriveIndia, Aug 2014. Eighty per cent of the formulations produced are consumed by native population, while majority of the bulk drugs manufactured are exported. India's growth in the domain is not only indicative of its acknowledged strengths (generics) in pharma but is also a reflection of a thriving healthcare sector and improving healthcare standards in the country.
The Government of India has unveiled 'Pharma Vision 2020' (McKinsay and company) aimed at making India a global leader in end-to-end drug manufacturing. According to Pharma Vision 2020, the trend will be characterised by strong growth in GDP and incomes, insurance coverage, and government and private sector spending on healthcare. Over the next decade, India's population is expected to grow at 1.3 per cent; the prevalence of diseases such as diabetes and cancer will increase by 25 to 40 per cent; GDP will grow at close to 8 per cent; the Rashtriya Swasthya Bima Yojana (RSBY) will cover 75 per cent of the BPL population; 1.9 million hospital beds will be added; and innovators will launch at least 25 per cent of their patented products, resulting in 7 to 9 patented product launches every year. Quite importantly, by 2020, the government will increase its spending on healthcare to 1.5 per cent of GDP. Investors will increase investments in consumer healthcare, biologics and vaccines. Moreover they will influence the patient by increasing awareness and treatment, thereby increasing the patient pool by 15 per cent.
Countries by values in USD (Updated up to 14 Aug 2014)
These positive changes will surely enhance growth of the pharma industry along with increased export in the global market. The focus of the Indian companies is on countries with ageing populations such as Japan, Africa, and Latin America, which need cheaper drugs. It is estimated that Indian companies will benefit by about $40 billion as 46 US drug patents expire in 2012-15. On the journey to be leader of global generics it becomes important to evaluate strength as well as weakness of the Indian pharma industry.
India's biggest strength is skilled manpower which is capable of communicating in English. Also, scientists, technicians, and management personnel is a strength. India provides fair protection to patents. Among the measures taken by Indian companies are increasing IT investments to facilitate real-time communication and visibility between the R&D and marketing sectors; collaborating with IT companies for services and solutions covering the entire life sciences value chain; and channelising their sales and marketing initiatives. The biggest problem faced by Indian pharma industry is low investment in innovative R&D hence majority of companies lack ability to compete with MNCs for novel drug discoveries, research and commercialisation of molecules on a worldwide basis due to lack of resources like infrastructure and technology. Therefore to improve and overcome challenges, industries should focus on advancing clinical trial efficiencies, actualising end-to-end medical products, increasing manufacturing productivity, enhancing supply chain visibility, improving sales and marketing effectiveness, improving operational efficiencies and reducing costs.
Also government has started Export Promotion Capital Goods (EPCG) Scheme, Zero Duty EPCG Scheme. The scheme will be available for exporters of engineering & electronic products, basic chemicals & pharmaceuticals, apparels & textiles, plastics, handicrafts, chemicals & allied products and leather & leather products; subject to exclusions as provided in HBPv1. (FDI Aug 2009 - March 2014). Such new policies and regulations are enhancing foreign trade investment in India. According to an article in print media, LoB (Limitation of Benefits) clause in the India-Singapore treaty justifies the substance in Singaporean entities, bringing certainty and avoiding chances of litigations.
The controversial General Anti Avoidance Rules (GAAR) provision, which seeks to check tax avoidance by investors routing their funds through tax havens, will come into effect from April 1, 2016, in India.
The GAAR provision will apply to entities availing tax benefit of at least Rs 3 crore.
It will apply to Foreign Institutional Investors that have claimed benefits under any DTAA (Double Taxation Avoidance Agreement).
The India-Mauritius DTAA is being revised amid concerns that Mauritius is being used for round-tripping of funds into India even though that country has always maintained that there have been no concrete evidence of any such misuse.
Foreign investments are crucial for India, which needs about $1 trillion by March 2017 to overhaul infrastructure such as ports, airports and highways and boost growth.
According to business today, the commerce and industry ministry had suggested lowering the FDI (Foreign Direct Investment) cap to 49 per cent in the brown field segment, keeping in mind the affordability of medicines and takeovers of domestic drug making companies by multinational giants. Then commerce and industries minister Anand Sharma had felt the present FDI policy in the sector had not yielded tangible benefits. He said investments in new areas had not displayed value addition in terms of additional infrastructure or the research & development segment. While, FDI in brown field investment had resulted in acquisition of domestic manufacturers by multinationals.
Many Indian companies maintain highest standards in purity, stability and international safety, health and environmental (SHE) protection in production and supply of bulk drugs even to some innovator companies. This speaks of the high quality standards maintained by a large number of Indian pharma companies as these bulk actives are used by the buyer companies in manufacture of dosage forms which are again subjected to stringent assessment by various regulatory authorities in the importing countries. More of Indian companies are now seeking regulatory approvals in USA in specialised segments like anti-infectives, cardiovasculars, and CNS (central nervous system) groups. Along with Brazil and PR China, India has carved a niche for itself by being a top generic pharma player.
Increasing number of Indian pharmaceutical companies have been getting international regulatory approvals for their plants from agencies like USFDA (USA), MHRA (UK), TGA (Australia), MCC (South Africa), and Health Canada. India has the largest number of USFDA-approved plants for generic manufacture. Considering that the pharmaceutical industry involves sophisticated technology and stringent Good Manufacturing Practice (GMP) requirements, major share of Indian pharma exports going to highly developed Western countries bears testimony to not only the excellent quality of Indian pharmaceuticals but also its price competitiveness. More than 50 per cent share of exports is by way of dosage forms. Indian companies are now seeking more Abbreviated New Drug Approvals (ANDAs) in USA in specialised segments like anti-infective, cardiovascular and CNS groups. E.g., applicant has to fill form No. 44 for clinical trials.
Indian exports
Over 60 per cent of India's bulk drug production is exported. Domestic pharmaceutical exports are growing at 30 per cent per annum. The export revenue now contributes almost half of the total revenue for the top three pharmaceutical majors: Dr Reddy's, Ranbaxy and Cipla. The other major exporters are Wockhardt Limited, Sun Pharmaceutical Industries Ltd and Lupin Laboratories. The formulations and exports are largely to developing nations in Commonwealth Independent States, south-east Asia, Africa and Latin America. In the coming years, opening up of US generics market and anti-HIV market in Africa will boost exports.
Impact of FDI
FDI always is a better option for direct investment in the country. FDI in pharmaceuticals is prevalent for about two decades.
Points highlighting impact of FDI
n R&D and New Product Development
n Productivity Enhancement
n Reduction in Imports
n Increase in Exports
n Improvement in Quality Standards
n Decrease in Net Foreign Exchange Outflow
n Increase in Return on Capital Employed
n Enhancing Marketing Base (Domestic & International) and Overall Profitability.
Conclusion
Although different problems are there, the Indian pharmaceutical industry will survive and improve by moving ahead using right steps at the right time. Indigenous manufacturers of polymers, chemicals, excipients, and APIs need to market their products virally so as to capture imported ingredients market in India. Continuous innovation in products is also necessary along with marketing. Shift in strategies of research and development is essential. There is significant need for industries to focus towards development of research base in academic institutions. Governmental authorities should consider opinions of industrial experts while framing policies and decisions. In order to improve and maintain base of pharmaceutical industry in India, there is dire need to take positive steps to increase exports by government and industries.
(The authors are clinical consultants and can be contacted at amrit@inclinition.com)
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