Icra lowers outlook for pharmaceutical sector to ‘negative’
NEW DELHI: Ratings agency Icra Ltd has revised its outlook on the Indian pharmaceutical sector to ‘negative’ from ‘stable’ due to a potential disruption in key raw material supplies from China following the novel coronavirus epidemic.
The outbreak, which originated in Wuhan, has affected manufacturers of active pharmaceutical ingredients (APIS) in China.
“Of the total imports of APIS and intermediates into India, China accounts for 65-70%. The situation is more alarming in case of intermediates of stages prior to APIS and key starting materials (KSMS), which are the building blocks for the drugs, wherein, in some cases, China is the exclusive supplier,” Icra said in a release.
In India, there have been multiple deliberations between the government, its think tank NITI Aayog and the pharmaceutical industry following worries over a potential crisis in supply of active pharmaceutical ingredients, especially for certain antibiotics, vitamins and steroids.
In some specific APIS, such as cephalosporins, azithromycin and penicillin, which are classes of antibiotics, the dependence on China is as high as 80-90%, Icra noted.
Risk Vs Uncertainty: Supervision, Governance & Skin-in-thegame, principal economic adviser in the finance ministry Sanjeev Sanyal tries to address just that.
Sanyal says in the earlier riskladen world, policymaking was easier as one could lay out the different possibilities that can manifest. “It will either rain tomorrow or it will not rain. In case of uncertainty, like coronavirus, you don’t even know what are the different possibilities. Because we live in an uncertain world, policymaking needs to be tailored to it,” explains K. Subramanian, chief economic adviser in the finance ministry and Sanyal’s boss.
In his discussion paper, Sanyal draws heavily from his past experience in the banking sector and the problems associated with the stringent regulations introduced by the Basel Committee, especially after the global financial crisis of 2007-08. The Basel norms and national regulators prescribe risk weights for bank asset classes and corresponding credit ratings based on which banks calculate the regulatory capital requirements as a share of riskweighted assets.
Sanyal says the “one-size-fitsall” regulatory approach to measure risk and assign risk weights implies reduced “genetic diversity” in the financial system, as banks and regulators around the world fine-tune their business models to assess and manage risk in an identical manner.
“This is dangerous as far from reducing risk, it actually compounds it. This is one major flaw in the entire Basel system as it is based on the idea of risk and not on the idea of uncertainty, whereas we live in an uncertain world. It has made it systemically more risky,” he adds.