'India's incentives for API production may cut supply risk'

NEW DELHI: 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 rating 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 required 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." (IANS) 

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