Nip monopolism in the bud
The Indian Drug Manufacturers’ Association (IDMA) has expressed its dismay after the Production Linked Incentive (PLI) scheme was launched by the Centre.
In its letter to the government, the association stated, without mincing words that selecting only one manufacturer for one molecule in the case of 21 key molecules will create a monopoly, making medicines expensive. As a representative organisation of the pharma industry, it has even dubbed the scheme ‘rigged’.
Among the various PLI schemes announced last year to boost the economy and generate employment, one was for promoting self-sufficiency in production of drug raw materials. The government approved Rs 6,940 crore to help increase production of 41 key raw materials.
This was because the spread of COVID-19 in China and subsequent closure of companies there exposed India’s strategic vulnerabilities in the pharma sector in the beginning of the last year. One area that made India think seriously and act following lockdown in China was developing self-sufficiency in active Pharmaceutical Ingredients (APIs), Key Starting Materials (KSMs) and Drug Intermediates (DI). A permanent solution for reducing dependency on China is needed considering China’s habit of raking up border dispute by its actions.
India has the third largest pharma industry producing 20 per cent generic drugs and 60 per cent vaccines of the total world production and exported to 200 countries. But, the industry is dependent on China for its raw materials like APIS, KSMs, DI, reagents, enzymes and antibodies.
Dependence on China is so heavy that almost 85 per cent of India’s API need is fulfilled with imports and of that, 68 per cent (by value) comes from China. In 2018-19, API imports from China were worth Rs 17,400 crore. Dependence on China is high in the case of fermentation-based APIs (antibiotics), feedstock and KSMs. In case of at least 5 APIs the total import (by volume) was from China, KPMG/CII report has revealed.
To produce 53 APIs or bulk drugs 41 KSMs are required. India has 1500 API manufacturing units, but its import from China grew steadily from mere 0.3 per cent in 1991 to the present level, probably due to the cost factor. China created a low cost API manufacturing industry and captured Indian market with cheaper products. China’s production cost stands at quarter of India’s.
Although the government’s reaction to this grim reality is appreciable, it should, as a pragmatic approach, listen to the industry’s grievance in its implementation.
As per the scheme’s details, up to four companies were to be permitted to produce any raw material. But in the case of 20 products, only one company has been selected. As claimed by the IDMA, if the scheme, is creating a monopoly, it is not acceptable. This will make drug makers dependent on that company alone, for a particular raw material.
Monopolism in running a country or a company must not be tolerated. It would act adversely in two ways. No other producer will be able to compete in that particular segment of APIs. The monopoly pricing of raw materials may ultimately make medicines costlier. So, the government will have to watch for this.
Though the scheme came into being as an outcome of COVID-19, API self-sufficiency is important from a political angle also and hence it should not be a temporary affair – till the scheme is in operation. For that, the cost angle of China will have to be kept in mind and the APIs will have to be made available at competitive prices to China’s.
The KPMH study shows that except for labour, all other cost factors like raw material, electricity and other costs are higher in India than China, making the production cost in China 20 to 30 per cent lower than India.
While the PLI scheme is a good start, addressing the industry concerns and bringing down the production cost will only help achieving the goal of self-sufficiency in APIs production.