India's PLI scheme reduces critical dependency on China
- In Current Affairs
- 10:45 PM, Sep 06, 2024
- Myind Staff
China could potentially win a war without firing a single bullet, a notion that, while exaggerated, highlights India's critical dependency on China for essential products—particularly medicines. Despite being the world's third-largest pharmaceuticals industry, India relies heavily on imports of raw materials, active pharmaceutical ingredients (APIs), and key starting materials (KSMs), also known as bulk drugs, which are crucial for medicine production. To reduce this dependency, the Indian government has launched a Production-Linked Incentive (PLI) scheme aimed at boosting domestic production of these raw materials.
A Mumbai-based company, Kinvan, has begun producing clavulanic acid, a key raw material used in the manufacture of amoxyclav, which is a combination of two medicines found in the popular antibacterial brand Augmentin, according to reports.
Another example is penicillin, which India once produced domestically but has been reliant on China for decades. According to a report from April, Hyderabad-based Aurobindo Pharma has received the green light to start producing the key starting material (KSM) penicillin G, which is essential for manufacturing several common antibiotics.
Dinesh Dua, the former chairman of Pharmexcil (Pharmaceuticals Export Promotion Council of India), remarked that China is a dominant player in the production of penicillin G, and India's initiative to start producing it domestically would be a significant achievement. He explained, "Around 30,000 metric tonnes of penicillin are imported from China. China has managed to dominate global production, including in India, due to substantial government support through subsidies, infrastructure development, a favourable regulatory environment, and low labour costs."
In December 2023, the Chemicals and Fertilisers Ministry informed Parliament that imports of active pharmaceutical ingredients (APIs) from China increased from ₹23,273 crore in 2021-22 to ₹25,551 crore in 2022-23.
Dinesh Shantilal Patel, Executive Chairman of Themis Medicare, explained that price controls were a major factor in India’s loss of self-sufficiency in pharmaceuticals. He recounted that in the 1970s and 1980s, the government restricted the production of key antibiotics such as penicillin, gentamycin, streptomycin, and oxytetracycline to public sector enterprises. By the 1990s, Indian pharmaceutical companies focused on finished products were eager to secure indigenous sources of raw materials. However, the influx of cheaper Chinese imports quickly dominated the market, squeezing out local API producers.
Patel noted, “The Indian formulators sourced their raw materials from China, choking the local API producers to death. Neither the formulations industry nor the government provided support, leading to a dead end.” He added that the government, noticing the lower prices of imported raw materials from China and the high cost of medicines, implemented the Drug Price Control Order (DPCO), which led to losses for Indian raw material producers and eventually forced many to shut down.
The Drug Price Control Order (DPCO) is a government policy designed to monitor and regulate the prices of essential drugs, adjusting them periodically based on production costs. Patel contends that the imposition of DPCO marked the beginning of the decline of the Indian API sector in the 1990s. He argues, "The government failed to anticipate the coming wave and did not take proactive measures to protect against the indiscriminate dumping of Chinese products."
He further notes that it soon became evident that Chinese suppliers had a strategic approach. As Indian drug manufacturers shifted entirely to Chinese intermediates and raw materials, Chinese suppliers exploited their dominant position by increasing prices by as much as four times their lowest rates.
India's heavy reliance on China for essential drugs became glaringly evident during the Covid-19 pandemic when disruptions in the supply of basic materials from China posed significant challenges to the availability of crucial medicines.
In response, the government introduced the Production-Linked Incentive (PLI) scheme in 2021 to achieve self-sufficiency in the pharmaceutical sector. With an allocation of ₹15,000 crore for the period from 2020-21 to 2028-29, the scheme aims to boost the $65 billion industry’s manufacturing capabilities by encouraging increased investment and production.
The PLI scheme is designed to reduce India’s dependence on Chinese imports and ensure a stable domestic supply of bulk drugs and active pharmaceutical ingredients (APIs). The push for self-reliance was further intensified by the global supply chain disruptions caused by the pandemic.
Image source: Business Standard
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