India’s pharmaceutical industry stands on the cusp of transformative growth, propelled by the rapid acceleration of domestic active pharmaceutical ingredient (API) production.
Recent projections from CareEdge Ratings indicate that the domestic API market, currently valued at approximately USD 15–16 billion, is expected to grow at a compound annual growth rate (CAGR) of 5–7 per cent in FY27 and FY28. This momentum is fuelled by supportive government policies aimed at strengthening local manufacturing, a structural shift toward high-potency and complex APIs, rising domestic demand, and greater penetration into regulated markets like the US and Europe, as well as emerging ones.
The US remains a key export destination for Indian pharmaceuticals, accounting for over 30 per cent of total shipments, followed by the European Union at around 19 pe r cent.
Challenges of Import Dependence
Despite this optimistic outlook, the industry remains vulnerable due to its persistent import reliance on China imports for key starting materials (KSMs), drug intermediates, and essential APIs such as penicillin G, levodopa, streptomycin, meropenem, carbidopa, vancomycin, gentamicin, and progesterone. This dependency threatens its status as the “Pharmacy of the World” by creating supply chain risks, exposes the sector to price volatility, and hampers India’s ability to reliably produce critical medicines during geopolitical tensions or global health crises.
In FY24, India’s imports of APIs and bulk drugs totalled Rs 37,700 crore, accounting for 35 per cent of domestic API demand, with China supplying roughly 70 per cent of this volume, Icra stated.
The Push for Self-Reliance
Government initiatives and Production‑Linked Incentive‑backed bulk drug parks with an outlay of Rs 3,000 crore, are delivering promising early results. These efforts are steadily fostering greater self-reliance and mitigating supply chain vulnerabilities.
APIs form a cornerstone of India’s pharmaceutical sector, comprising around 35 per cent of the domestic market. As the world’s third-largest API producer, India holds an 8 per cent global share, manufactures over 500 different APIs, and supplies 57 per cent of those on the WHO prequalified list.
India’s large and growing domestic market drives strong demand for APIs in both generic and innovative drugs. The widespread adoption of affordable generics, combined with rising needs in chronic conditions — for example, India’s diabetic population is projected to reach 92.9 million by 2030 — has significantly boosted requirements for advanced and safer treatment options.
In 2020, the government launched a Rs 6,940 crore PLI scheme to promote domestic production of KSMs, drug intermediates, and APIs. Under this initiative, production has already commenced for 35 such APIs, covering approximately 67 per cent of those where India previously had 90 per cent import dependency
Additionally, the Department of Pharmaceuticals, in collaboration with the Council of Scientific and Industrial Research, has listed out 56 high-priority APIs under the Make-in-India initiative. These include essential ingredients for antibiotics, anti-HIV drugs, and widely used medications like paracetamol.
With production of critical APIs already underway, India is advancing toward self-reliance while simultaneously expanding its global export footprint. Custom synthesis and contract manufacturing further support growth through tailored collaborations with international clients.
Transition to Higher-Value Segments
India is transitioning from a generics powerhouse into a more integrated player in innovation, contract research, development, and manufacturing (CRDMO/CDMO), and specialized production. This positions the country to challenge established supply chains, particularly as global companies pursue “China+1” diversification strategies.
Following pandemic-related supply chain disruptions, pharmaceutical companies here have been heavily investing on APIs and are increasingly moving away from basic, commodity-style APIs to more sophisticated and complex variants. This transition is aimed at combating the price erosion in simpler APIs, boosts profit margins, and builds customer loyalty by offering higher-value solutions. High-potency and complex APIs — often requiring advanced containment and specialised processes — are seen as a pathway to capture premium segments, particularly in areas like oncology and other advanced therapies.
Additionally, Indian API producers are modernising operations to remain globally competitive. This includes adopting sustainability practices, leveraging advanced technologies like artificial intelligence (AI) and data analytics for process optimisation, and transitioning to efficient methods such as flow manufacturing. These changes enhance efficiency, cut costs, and ensure compliance with stringent global regulatory and environmental standards.
“While the full impact of these measures will take time to materialise, progress is visible: more than 30 projects have been completed, many firms having inaugurated new capacities under the scheme,” the ratings agency said.
As these capacities ramp up in the coming quarters, dependence on China is expected to decline further. Although some critical APIs may still require imports in the short term, this domestic push represents a significant stride toward self-reliance, enhanced supply chain resilience, and better control over costs and quality.
Broader Impact on Pharmaceutical Sector
The API expansion is a game-changer for India’s pharmaceutical industry, which ranks third globally by volume and supplies about 20 per cent of the world’s generic drugs. It also aligns with India’s ambition to achieve double-digit export expansion in 2026-27, building on the solid 9.4 per cent growth recorded in 2024-25, when exports reached USD 30.47 billion, and overall turnover projections heading toward USD 120-130 billion by 2030.
Between FY18 and FY23, the sector achieved a CAGR of 6–8 per cent, spurred by an 8 per cent growth in exports and a 6 per cent increase in the domestic market. This growth trajectory continued into FY24-25, with the industry achieving a turnover of Rs 4.72 lakh crore, fuelled by strong export performance and strategic market diversification. By 2026, the industry is anticipated to expand by 7–9 per cent fuelled by a shift from volume-driven generics to high-value, innovation-led products like biosimilars and specialty medicines with a focus on chronic therapies supported by a Rs 10,000 crore investment in biopharma.
By scaling complex APIs, India can capture higher-value segments, potentially increasing its slice of the USD 200-250 billion global API market. Combined with improved quality compliance, technological advancements, and a sustainability focus, these developments will reinforce the country’s long-term leadership and solidify its role in the global pharmaceutical supply chain.