SME Times News Bureau | 10 Aug, 2020
The
government's decision to incentivise domestic manufacturing of active
pharmaceutical ingredients (API) and key starting materials (KSM) could curtail
supply-chain disruption risk for Indian drug makers, Fitch Ratings said on
Monday.
The ratings agency said that the incentives address core issues of pricing
competitiveness and funding and may assist the investment decisions of local
pharma companies in the current environment.
"India is one of the world's leading suppliers of drugs - mostly generic
formulations - but depends on imports for its requirement of APIs and KSMs,
particularly China, which accounted for more than 60 per cent of requirements
in some therapy areas," Fitch Ratings said in a statement.
"The government announcements follow recent developments, including plant
closures in China due to the coronavirus pandemic earlier in the year and the
more recent border standoff with China, which underscore supply-disruption risk
due to overdependence on imports."
As per the statement, India's reliance on pharma ingredient imports has risen
over the past few decades due to the higher cost of domestic production, with
the price gap reaching as much as 20-30 per cent, particularly for
energy-intensive fermentation-based ingredients used in anti-infectives.
Import dependence is more than 90 per cent for some life-saving drugs,
including penicillin and ciprofloxacin.
"We believe the government announcement, which includes production-linked
incentives and financial assistance schemes aggregating to $1.3 billion, will
help address the two keys issues; the higher cost of domestic production
compared with imports and funding requirement to set up the necessary
infrastructure," the statement said.
"The production-linked incentive scheme - which accounts for Rs 0.9
billion of planned outlay - offers an incentive of up to 20 per cent of sales for
fermentation-based products and up to 10 per cent for chemical synthesis-based
products for the next eight to nine years. This should help to bridge the price
gap and make domestic production more competitive."
The government has also allocated $0.4 billion under the capex assistance
scheme to fund up to 90 per cent of the investment need to build common
infrastructure facilities in three bulk drug parks.
"We believe this will aid the investment decisions of Indian pharma
companies, particularly in the current environment where the focus in on
conserving cash," the statement said.
"While these incentives aim to encourage incremental investment to ensure
uninterrupted supplies for domestic needs, companies with existing API
production capabilities... could benefit from export opportunities over the
medium- to long-term as pharma companies globally look to diversify their
sourcing - a theme that has gained relevance due to the pandemic."