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Chinese shadow on Indian Pharmaceutical Industry

Admin September 20, 2021

The Government of India will have to immediately plan and take strict steps to end dependence on China in terms of APIs. — Dr. Ashwani Mahajan

 

India is called the pharmacy of the world. In pharmaceuticals’ production, India ranks fourth in the world in terms of value and third in terms of volume. India exports medicines to most of the countries of the world, while the share of Indian medicines in the US market is 34 percent. We manufacture medicines for not merely common diseases like malaria, common infections, vitamin deficiencies, diabetes, but even for diseases like cancer, asthma, HIV, heart diseases. India’s pharmaceutical industry not only satisfies the public health needs in the country, credit of providing affordable medicines to the whole world also goes to the Indian pharmaceutical industry.

However, for the last few years, the Indian pharmaceutical industry has been under such a shadow of China that its existence itself is endangered. The reason is that China has almost captured the supply chain of the pharmaceutical industry. Due to this, not only the health security of India’s 135 crore people could be at risk, it could even eclipse India’s ability to provide affordable medicine to the rest of the world.

How did China dominate the supply chain?

Prior to the year 2000, India was a leading country in the supply chain of the pharmaceutical industry, and there was a worldwide demand for Indian made Active Pharmaceutical Ingredients (APIs). India was thriving in the field of basic chemicals, intermediate chemicals and APIs. But after the year 2000, though, India continued to be the source of ready-made medicines for the world, but the manufacturing of API and intermediates started slipping from India and went into the hands of China; and India and the world became dangerously dependent on Chinese APIs.

Though this happened almost suddenly for the world, it was a deliberate move of China. They created unimaginable sized production capacities for intermediate chemicals and APIs on the one hand and on the other hand, they started dumping them in the world markets including India at less than half the normal price. For that, the Chinese government was an active collaborator/ conspirator. Low-interest loans, long-term moratorium on debt repayment, credit guarantees by the Chinese insurance company Sinosure, proactive research and development support, export promotion incentives (13 to 17 percent), marketing incentives, cheap electricity and community facilities, deliberately lax pollution regulatory laws, etc. Many such provisions were made, which were also against international trade (WTO) rules. One can say that the Indian API industry was systematically destroyed by China.

This can be illustrated with the example of the price movements of 6-APA (6-Amino Penicillanic Acid, a derivative of Penicillin-G), the basic chemical building block for antibiotics, such as Ampicillin, Amoxucillin, Cloxacillin, Diclocacillin, Flucloxacillin, Oxacillin among others. It may be noted that in 2005, India was completely self-sufficient for 6-APA, as there were four manufacturers of Penicillin-G in India. Today the situation is that India has become 100 percent dependent on China for this input. Not only this, the whole world is 100 percent dependent on China for this input. Until 2001, before the Chinese market aggression, 6-APA was sold for an average price of US$22 per kg. Between 2001 and 2007, the Chinese suppliers crashed the 6-APA prices by less than half to an average of US$9 per kilogram, and in the process, China destroyed the production capacity of India and the rest of the world. The effect of which was that all four companies in India which were manufacturing Penicillin-G and 6-APA stopped their production, because they could not sustain production of this key input, with such high losses. But as soon as Indian companies went out of production, China started increasing the prices of Penicillin-G and 6-APA. Since then the price of 6-APA has increased from USD 9 per kg in 2006 to a peak of USD 35 per kg, as per import statistics of July 2021 and it continues to increase.

In fact, China’s strategy was that wherever manufacturers were in competition with them in India or globally, the price should be brought down to extremely low level to ensure flushing out of these manufacturers. As soon as these manufacturers are out of the market and China’s monopoly is established, then exploitation and eventually blackmailing starts by hiking prices and adoption of restrictive trade practices. The situation is that, today China has established a monopoly in almost all types of Intermediates and APIs and as result they have resorted to a diabolical state-sponsored strategy, where all the Chinese suppliers have all come together to exploit the situation by hiking the prices significantly of products they export.

If we take the price data from January 2020 to July 2021, it is found that the price of ‘6-APA’, key inputs for all types of antibiotics, has increased by 66 percent. Other examples where the Chinese have increased the prices significantly (over the last 18 months), all in products in which they enjoy monopoly, include ‘DBA’, the key input for anti-malarial drug which has increased by 47 percent, ‘Erythromycin TIOC’ , key input for Azithromycin has increased by 44 percent, that of ‘Penicillin-G’ by 97 percent and many such examples .

Even for intermediates (products which are the pre-cursor to the final APIs), China has adopted a similar strategy. That is, it can be said that China is making every effort to destroy the public health security of India. In such a situation, if India is completely dependent on China for these important inputs in the field of medicines, it is possible that if China suddenly stops supplying these APIs, then our public health security can completely jeopardise. In the country every year 15 crore people suffer from malaria, 5.45 crore suffer from heart diseases, 22.5 lakh people suffer from cancer, 125 crore people need antibiotics, 21 lakh are HIV patients and 30 million people suffer from diabetes. In such a situation, the very thought of what will happen to these patients is disturbing.

The possibility of China taking such a step is not a fantasy, but a reality. China has already threatened to stop drug supplies to the US and concerns are being expressed in the US. India’s National Security Advisor AjitDoval had also warned that India’s dependence on China for APIs could be a serious national security threat.

What is the solution?

The Government of India will have to immediately plan and take strict steps to end dependence on China in terms of APIs. Recently, the government has announced Production Linked Incentives (PLI) plan to encourage API production in the country, under which an amount of Rs 12,000 crore has been allocated. But that alone will not suffice. To defeat China in the price war, the government will have to impose ‘Safeguard’ and ‘Anti-Dumping’ duties on all APIs. Where API firms are struggling for survival, funds may be allocated for upgradation of technology. Government’s support for establishment of research and development facilities could be helpful. Easing environmental laws for API units and exemption from environmental laws may be appropriate strategy, looking at national security angle of dependence on China, reduction in import duty for testing equipment and allotment of land at cheaper rates, making it a pre-condition that Indian buyers of APIs and Intermediates are required to buy at least 50% of their requirements from domestic manufacturers if those products are available from India, etc. could be some other steps to safeguard national interests and possibly avoid impending crisis.   
 

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