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Indian pharma industry is riding on the economic reforms to become a global power

Indian pharma industry is riding on the economic reforms to become a global power

By Joseph Pategou

India is, undoubtedly, the demographic giant of tomorrow. With a growth rate of 1.2% in 2015, the country currently has a population of more than 1.3 billion. According to the United Nations (UN), India is estimated to be more populated than China in the next five years or even earlier. In fact, by 2030, it is expected to reach 1.5 billion and will continue to grow, hitting 1.7 billion by 2050. This is mainly due to a decrease in the mortality rate and an increase in life expectancy–from 58 years in 1990 to 68 years in 2015.

The great Indian GDP

The World Bank stated that the Gross Domestic Product (GDP) in India was worth $2,074 in 2015 which represented more than 3.3% of the world economy. It might as well exceed that of the United Kingdom in the future, thus, making India the world’s sixth-largest economy in terms of GDP. Owing to its rapid economic growth, India has already surpassed China to become the fastest growing global economy. This trend will probably continue for a few more years considering a prediction of 7.6% GDP growth in 2017 by the Indian Monetary Fund (IMF).

Three factors drive India’s success: Lower prices of raw materials, lower-than-expected inflation and the reforms put in place by Prime Minister Narendra Modi.

Economic reforms on the rise

Economic changes aim to lead India to the path of economic modernisation. For this reason, PM Modi has formulated a new national tax system. This shall liberalise a part of the agricultural, distribution and air transport industries. However, some of these reforms are controversial–currency being one of the most emblematic. In this context, foreign companies, especially telecommunications and pharmaceuticals, have been investing heavily in consumer goods. In fact, these three sectors attracted $4.6 billion in foreign investment during the FY2015-2016.

Consumer trends are changing rapidly and this is clearly visible through the rise of smartphones. In 2016, the country counted 300 million users against only 44 million in 2012. 17% of the users shop on the internet with their smartphones. The same dynamism is observed in the automotive market, where sales grew at a 9% annual rate. Banks had clearly understood this trend and loans issued to individuals rose by 13.5% during the year. Despite the inequality between urban and rural areas in terms of per capita GDP or access to infrastructure, this trend of economic growth has been as inclusive as possible. Since 2014, 276 million bank accounts have been opened for the poor, 34 million toilets have been built and out of the 18,452 unelectrified villages, 7,108 villages have been electrified in 2015-16.

Pharma industry reaps the benefits

India’s economic performance can be aptly illustrated through the pharmaceutical sector. The pharmaceutical industry, which globally represents more than €1.1 trillion, is mainly driven by emerging markets. These markets have consistently outpaced already developed markets over the past five years. This highlights their growing importance in the growth of the global market in which India is one among the biggest players. After the Indian Patent Act was passed in 1970, the Indian pharmaceutical sector grew to more than $27 billion in 2016 and is expected to hit $55 billion in 2020. Currently, India accounts for 2.4% of the net value and 10% in volume of the global pharmaceutical industry.

The pharma sector: A statistical glance

This industry is divided into 4 segments out of which Active Pharmaceutical Ingredients is where India is the third largest player. The Contract, Research and Manufacturing services are expected to reach $18 billion in 2018. Furthermore, Formulations Activities are 14% of the market share, making India the largest exporter in volume. The last segment, Biosimilars, with a revenue of $1.4 billion in 2016, is expected to reach $40 billion by 2030. In 2004, India was ranked 16th for global exports and has been among the top 10 since 2013.

The country’s worldwide exports have increased mainly due to the specialisation in generic drugs. Generic drugs form the biggest segment of Indian pharmaceutical sector with 70% market share in revenue. India is the largest provider of global generic drugs with more than 20% of the market share. The country has seen its global pharmaceutical export levels come closest to industrialised countries’ average export levels.

India’s ride towards glory

There are many factors that account for India’s success. Its strong economic performance invites investment from all stockholders. The cost of manufacturing drugs is 50% lower than in America and Europe. There are a variety of drugs which the Indian companies are able to produce and deliver globally.

Additionally, the strong policy support from the government boosts investments. According to India Brand Equity Foundation, by 2020, India will be among the top 3 pharmaceutical markets globally. This continuous economic execution, coupled with the population growth since 1990, has placed India on the map of the world as a Titan. This has also greatly helped the country to strengthen its position and influence the pharmaceutical landscape.

Joseph Pategou is a consultant specialising in the pharmaceutical industry at Wavestone.

Featured Image Source: Visual Hunt

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