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China crackdown on polluting firms leaves Indian pharma industry in quandary as API prices rise 40% in four months

Arun Sreenivasan, New Delhi
Friday, July 13, 2018, 08:00 Hrs  [IST]

A decisive push by the Chinese government to root out polluting industries across the country is sending shock waves through the Indian pharmaceutical sector that depends heavily on active pharmaceutical ingredients (APIs) imported from China. The price of some APIs -- raw materials required for making finished drugs -- has gone up by around 40 per cent in the last four months in the Indian market and drug manufacturers, especially small and medium enterprises (SMEs), are struggling to fulfill their contractual obligations owing to steep rise in production cost, it is learnt.

According to industry sources, the API price has already gone up substantially in many cases and if the situation continues, it will go up further. For instance, the price of Paracetamol I.P has risen by 45 per cent in the last few months, propylene glycol I.P is up by 30 per cent, azithromycin by 36 per cent, ciprofloxacin by 28 per cent and ofloxacin by 31 per cent. Other APIs whose prices have shown an upward trend include rabeorazole, esomeprazole magnesium, pantoprazole sodium, methylcobalamine, losartan potassium, sildnafil citrate, montelukast, telmisartan, cefixime, cefpodoxime proxetil and cefuroxime axetil.

"In a statement issued on July 9, the Chinese environment ministry said that hundreds of officials have been jailed for failing to check environmental violations uncovered during inspections last year". A total of 4,305 officials in 10 provinces and regions had been brought to book for failing to rectify violations, with many of them facing heavy fines and prison term. Though the manufacturing units inviting the wrath of Chinese authorities are from various sectors, producers of APIs are majorly affected and the impact is expected to be more serious than thought.

The current crackdown hasn’t come as a surprise as China is in the fifth year of its war on pollution. Beijing is now focused on tighter regulations and stricter enforcement after learning the hard way that the present unrestrained environmental use is hardly sustainable. But the Indian manufacturers, especially SMEs bearing the maximum brunt of the present API price surge, point the finger at the Central government for its failure to adopt preemptive measures and conducive policies despite numerous pleas from the industry.

“It is a known fact that India heavily banks on China for its APIs. A crackdown there means the price of raw materials will go up. It will take a toll on our industry,” Federation of Pharma Entrepreneurs (FOPE) president BR Sikri told Pharmabiz.

A recent study commissioned by the commerce ministry and the Indian embassy in Beijing and released by commerce minister Suresh Prabhu paints a bleak picture of the country’s overdependence on Chinese APIs. As per the report, India imports around 80 per cent of APIs from the neighbouring nation on volume basis. “Cost between India and China is highly competitive with only difference of 3 per cent i.e. in labour cost, rest remains in competition with the Indian market. Though the material, depreciation and indirect personnel cost remains the same as of India, there is an upsurge in the imports of APIs from China,” the study noted.

The report also lists reasons for this upswing. “They (Chinese companies) have huge capacities built up by the government and are now managed by the private industry. There is also significant bank support in the form of loans at negligible interest rates. They also have freedom, in terms of pollution norms and effluent treatment compared to our units. Another major issue is India’s liberal approach in approving registrations for Chinese products. The Chinese take two to five years to approve Indian products and India takes two to five months to approve Chinese products. All these are resulting in a cost differential. When an intermediate product is available at a lower cost, the manufacturer would definitely take it,” the study noted.

“In the last 3-4 months, the price of many APIs has gone up by 30-40 per cent. In government-rate contract supply, the manufacturers are facing severe cost woes. It is going to be a disastrous year for manufacturers, especially MSMEs,” Bihar Drugs and Pharmaceutical Manufacturers’ Association (BDPMA) President Sanjiv Rai said.

“The government has no action plan to resolve this issue. They are just concentrating on larger manufacturers,” he added.

Of late, the department of pharmaceuticals has adopted some new measures to boost the domestic bulk drug sector. A Centre-state financial aid initiative, with a budget allocation of Rs.200 crore, has been unveiled to develop common facility centres at bulk drug parks. A high-level task force was constituted to formulate a roadmap for API sector and study global manufacturing practices. But these initiatives remain on paper and there is little progress on the ground, as revealed by the latest data.

Though there is no serious disruption in production yet, many SME manufacturers have expressed concern over raw material shortage and resultant rise in production cost. Some are seeking alternative raw material sources to tide over the problem. But this will be an uphill task as several intermediate chemicals that are no longer manufactured in Europe or the US can be obtained only from China.


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Manjit Singh Jul 14, 2018 11:53 AM
Backward integration in a focussed manner is must for India Pharma. Govt to bring dynamic approach to future boost pharma industry .
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