The Role of Pharmaceutical industry in Indian Economy

Drugs and pharmaceutical industry plays a vital role in the economic development of a nation. It is one of the largest and most advanced sectors in the world, acting as a source for various drugs, medicines and their intermediates as well as other pharmaceutical formulations. Being the intense knowledge-driven industry, it offers innumerable business opportunities for the investors/ corporates the world over. The existence of well-defined and strong pharmaceutical industry is important for promoting and sustaining research and developmental (R&D) efforts and initiatives in an economy as well as making available the quality medicines to all at affordable prices. That is, it is essential to improve the health status of the individuals as well as the society as a whole, so that positive contributions could be made to the economic growth and regional development of a country.

The Indian drugs and pharmaceutical industry, over the years, has shown tremendous progress in terms of infrastructure development, technology base creation as well as product usage. On the global platform, India holds fourth position in terms of volume and thirteenth position in terms of value of production in pharmaceuticals. The pharmaceutical industry has been producing bulk drugs belonging to all major therapeutic groups requiring complicated manufacturing processes as well as a wide range of pharma machinery and equipments. It has also developed excellent ‘good manufacturing practices’ (GMP) compliant facilities for the production of different dosage forms. Besides, the amendment to the Patents Act, 1970 [enactment of Patents (Amendment) Act, 2005], has opened up new avenues for the sector. The new patent regime has ushered in the era of product patents for the pharmaceutical sector, in line with the obligations under the World Trade Organisation (WTO) and Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. As a result, the Indian pharmaceutical industry has become self-reliant in several areas and has developed a more sound and technologically advanced R&D segment.


The Pharmaceutical industry in India is the world’s third-largest in terms of volume.According to Department of Pharmaceuticals of the Indian Ministry of Chemicals and Fertilizers, the total turnover of India’s pharmaceuticals industry between 2008 and September 2009 was US$21.04 billion. While the domestic market was worth US$12.26 billion. The industry holds a market share of $14 billion in the United States.

According to India Brand Equity Foundation, the Indian pharmaceutical market is likely to grow at a compound annual growth rate (CAGR) of 14-17 per cent in between 2012-16. India is now among the top five pharmaceutical emerging markets of the world.

Exports of pharmaceuticals products from India increased from US$6.23 billion in 2006–07 to US$8.7 billion in 2008–09 a combined annual growth rate of 21.25%. According to PricewaterhouseCoopers (PWC) in 2010, India joined among the league of top 10 global pharmaceuticals markets in terms of sales by 2020 with value reaching US$50 billion. The government started to encourage the growth of drug manufacturing by Indian companies in the early 1960s, and with the Patents Act in 1970. However, economic liberalisation in 90s by the former Prime Minister P.V. Narasimha Raoand the then Finance Minister, Dr. Manmohan Singh enabled the industry to become what it is today. This patent act removed composition patents from food and drugs, and though it kept process patents, these were shortened to a period of five to seven years.

The lack of patent protection made the Indian market undesirable to the multinational companies that had dominated the market, and while they streamed out Indian companies carved a niche in both the Indian and world markets with their expertise in reverse-engineering new processes for manufacturing drugs at low costs. Although some of the larger companies have taken baby steps towards drug innovation, the industry as a whole has been following this business model until the present.

India’s biopharmaceutical industry clocked a 17 percent growth with revenues of Rs. 137 billion ($3 billion) in the 2009–10 financial year over the previous fiscal. Bio-pharma was the biggest contributor generating 60 percent of the industry’s growth at Rs. 88.29 billion, followed by bio-services at Rs. 26.39 billion and bio-agri at Rs. 19.36 billion.

In 2013, there were 4,655 pharmaceutical manufacturing plants in all of India, employing over 345 thousand workers.

There are five public sector undertakings (PSUs) in the pharmaceutical sector, namely:-

  • Indian Drugs and Pharmaceuticals Ltd. (IDPL)
  • Hindustan Antibiotics Ltd. (HAL)
  • Bengal Chemicals and Pharmaceuticals Ltd. (BCPL)
  • Bengal Immunity Ltd. (BIL)
  • Smith Stanisteet Pharmaceuticals Ltd.(SSPL)



The number of purely Indian pharma companies is fairly less. Indian pharma industry is mainly operated as well as controlled by dominant foreign companies having subsidiaries in India due to availability of cheap labor in India at lowest cost. In 2002, over 20,000 registered drug manufacturers in India sold $9 billion worth of formulations and bulk drugs. 85% of these formulations were sold in India while over 60% of the bulk drugs were exported, mostly to the United States and Russia. Most of the players in the market are small-to-medium enterprises; 250 of the largest companies control 70% of the Indian market. Thanks to the 1970 Patent Act, multinationals represent only 35% of the market, down from 70% thirty years ago. Most pharmaceutical companies operating in India, even the multinationals, employ Indians almost exclusively from the lowest ranks to high level management. Homegrown pharmaceuticals, like many other businesses in India, are often a mix of public and private enterprise.

Product development

Indian companies are also starting to adapt their product development processes to the new environment. For years, firms have made their ways into the global market by researching generic competitors to patented drugs and following up with litigation to challenge the patent. This approach remains untouched by the new patent regime and looks to increase in the future. However, those that can afford it have set their sights on an even higher goal: new molecule discovery. Although the initial investment is huge, companies are lured by the promise of hefty profit margins and has a legitimate competitor in the global industry. Local firms have slowly been investing more money into their R&D programs or have formed alliances to tap into these opportunities.

Small and medium enterprises

As promising as the future is for a whole, the outlook for small and medium enterprises (SME) is not as bright. The excise structure changed so that companies now have to pay a 16% tax on the maximum retail price (MRP) of their products, as opposed to on the ex-factory price. Consequently, larger companies are cutting back on outsourcing and what business is left is shifting to companies with facilities in the four tax-free states – Himachal Pradesh, Jammu & Kashmir, Uttaranchal and Jharkhand. Consequently a large number of pharmaceutical manufacturers shifted their plant to these states, as it became almost impossible to continue operating in non-tax free zones. But in a matter of a couple of years the excise duty was revised on two occasions, first it was reduced to 8% and then to 4%. As a result the benefits of shifting to a tax free zone was negated. This resulted in, factories in the tax free zones, to start up third party manufacturing. Under this these factories produced goods under the brand names of other parties on job work basis.

As SMEs wrestled with the tax structure, they were also scrambling to meet the 1 July deadline for compliance with the revised Schedule M Good Manufacturing Practices (GMP). While this should be beneficial to consumers and the industry at large, SMEs have been finding it difficult to find the funds to upgrade their manufacturing plants, resulting in the closure of many facilities. Others inves


Even after the increased investment, market leaders such as Ranbaxy and Dr. Reddy’s Laboratories spent only 5–10% of their revenues on R&D, lagging behind Western pharmaceuticals like Pfizer, whose research budget last year was greater than the combined revenues of the entire Indian pharmaceutical industry. This disparity is too great to be explained by cost differentials, and it comes when advances in genomics have made research equipment more expensive than ever. The drug discovery process is further hindered by a dearth of qualified molecular biologists. Due to the disconnect between curriculum and industry, pharma in India also lack the academic collaboration that is crucial to drug development in the West and so far.

Pharmaceuticals and biotechnology

Unlike in other countries, the difference between biotechnology and pharmaceuticals remains fairly defined in India. Bio-tech there still plays the role of pharma’s little sister, but many outsiders have high expectations for the future. India accounted for 2% of the $41 billion global biotech market and in 2003 was ranked 3rd in the Asia-Pacific region and 11th in the world in number of biotech. In 2004-5, the Indian biotech industry saw its revenues grow 37% to $1.1 billion. The Indian biotech market is dominated by bio pharmaceuticals; 75% of 2004–5 revenues came from bio-pharmaceuticals, which saw 30% growth last year. Of the revenues from bio-pharmaceuticals, vaccines led the way, comprising 47% of sales. Biologics and large-molecule drugs tend to be more expensive than small-molecule drugs, and India hopes to sweep the market in bio-generics and contract manufacturing as drugs go off patent and Indian companies upgrade their manufacturing capabilities.

Most companies in the biotech sector are extremely small, with only two firms breaking 100 million dollars in revenues. At last count there were 265 firms registered in India, over 75% of which were incorporated in the last five years. The newness of the companies explains the industry’s high consolidation in both physical and financial terms. Almost 50% of all biotech are in or around Bangalore, and the top ten companies capture 47% of the market. The top five companies were homegrown; Indian firms account for 62% of the bio-pharma sector and 52% of the industry as a whole.[4,46] The Association of Biotechnology-Led Enterprises (ABLE) is aiming to grow the industry to $5 billion in revenues generated by 1 million employees by 2009, and data from the Confederation of Indian Industry (CII) seem to suggest that it is possible.