Softening API Prices Signal Stability for Indian Pharma, But Challenges Loom

The pharmaceutical industry is a key pillar of India’s economy, accounting for over $50 billion in annual revenue and supplying medicine to over 200 countries. Yet, this critical industry is facing ongoing headwinds in the form of price competition, import dependency, and operational inefficiencies in the active pharmaceutical ingredients (API) segment.

Recent declines in API prices, which have been on a downward spiral for over a year, are finally showing signs of stabilization. This brings a much-needed breather for Indian manufacturers. However, fierce competition from Chinese exporters, who dominate the global API market, means that long-term success lies firmly in strategic recalibration, operational efficiency, and reducing import dependency.

This article unpacks the dynamics of softening API prices, examines the opportunities and obstacles for Indian pharma, and outlines how the industry can position itself for growth.

API Price Decline: A Closer Look

Over the past 12–15 months, API prices in India have declined significantly, with some products witnessing reductions as steep as 40%. The most heavily impacted APIs include paracetamol, cephalosporins, and penicillin-G. Exports have also been hit hard, seeing price drops of over 25%.

This decline is largely attributed to aggressive price cuts by Chinese suppliers, who control roughly 70% of India’s API imports. While the price war has put immense pressure on domestic manufacturers, a silver lining may be on the horizon. According to Sudarshan Jain, Secretary General of the Indian Pharmaceutical Alliance, further price reductions are unlikely, and stabilization could be imminent.

However, operating in this volatile environment will require manufacturers to adopt a laser focus on cost containment and process optimization.

Government’s Push for Self-Reliance

India’s dependency on China for APIs became glaringly evident during the COVID-19 pandemic, when supply chains were interrupted, exposing the fragility of the local ecosystem. Recognizing this vulnerability, the Indian government launched the Production-Linked Incentive (PLI) Scheme, which incentivizes domestic production of 41 essential bulk drugs.

The results are gradually materializing. Companies like Aurobindo Pharma and Lyfius Pharma have resumed the local production of penicillin-G after decades of inactivity. Additionally, in March, the government approved 27 greenfield bulk drug park projects, marking a significant step toward reducing import reliance on key ingredients.

However, the success of these initiatives will require scaling up production capabilities, addressing quality standards, and competing with China's entrenched price dominance.

Post-Pandemic Price Dynamics

The pricing volatility seen during the COVID-19 pandemic was unlike anything the industry had faced before. Restricted supply lines caused panic buying, skyrocketing API prices by as much as 200% in some cases. But as pandemic-related demand normalized, prices started to fall—an effect compounded by cheaper base chemicals, linked to declining crude oil prices.

Chinese exporters have since further disrupted the market by preemptively slashing their prices as a defensive move against India’s PLI scheme. This has squeezed the margins of Indian API manufacturers, inflicting a significant financial toll.

For Indian players, recent API price trends reflect both the challenges of competing with China and the need for greater stability in input costs to better align manufacturing cycles with demand forecasts.

Industry Outlook: Stability in Sight?

Market insiders are cautiously optimistic about the stabilization of API prices, with many forecasting normalization by Q4 FY25. Leaders at companies like Akums Drugs and Pharmaceuticals and Divi’s Laboratories suggest that demand recovery and steadying raw material costs will ease pricing pressures.

Notably, declining costs for APIs like antibiotics have already benefitted companies such as Alkem Labs, which reported EBITDA margin expansions in recent quarters. Similarly, Divi’s Laboratories, with its portfolio of over 10 generic APIs, expects the market to stabilize further over the next 6–12 months.

While these trends offer a glimmer of relief, survival in the API business—particularly for small- to mid-sized companies—requires more than a reliance on price rebounds.

Balancing Competition and Costs

For domestic manufacturers, falling API prices have been a double-edged sword. While formulation companies targeting export markets, such as the US, reap cost savings, raw material manufacturers bear the brunt of lower margins.

Larger players like Divi’s Laboratories and Aurobindo Pharma are better positioned to weather the storm. Their robust portfolios and economies of scale allow them to sustain growth despite pricing challenges. Smaller firms, however, struggle to compete in an environment where any attempt to ramp up local API production is swiftly countered by Chinese exporters through further price cuts.

Sudarshan Jain underscores this challenge, noting, “Whenever we make our own APIs, China would like to reduce its prices further.” This underscores the need for Indian manufacturers to align closely with global trends and customer demands, particularly in advanced markets.

Strategic Priorities for the API Industry

To bolster resilience and carve out a competitive edge in the API market, Indian manufacturers need to focus on three key areas:

1. Cost Optimization

Operational efficiency is non-negotiable for Indian manufacturers competing with China. Investment in advanced manufacturing technologies such as continuous production processes, automation, and energy efficiency improvements can drastically reduce production costs.

2. Innovation in Complex APIs

To stay ahead, manufacturers must move beyond commoditized APIs and venture into complex, high-value segments such as oncology, biologics, and specialty chemicals. For example, pioneering advanced therapeutic APIs could open new growth streams while easing dependency on high-volume, low-margin products.

3. Maximizing PLI Benefits

The PLI scheme represents a golden opportunity to strengthen domestic API production. Scaling up facilities, meeting stringent quality compliance requirements, and building long-term supplier relationships will be vital in reducing import dependence and fostering a sustainable ecosystem.

Why the Future of APIs in India Matters

The API market serves as the backbone of both domestic and global pharmaceutical supply chains. India's ability to reduce its reliance on Chinese suppliers is not merely an industry imperative—it’s a strategic necessity with implications for national security, public health, and economic growth.

Price stabilization offers a rare opportunity for the sector to recalibrate. However, achieving true self-reliance will require a concerted effort from policymakers, industry leaders, and financial stakeholders to address structural inefficiencies and align incentives for long-term growth.

For the Indian pharmaceutical industry, the road ahead is clear but challenging. Staying competitive in global API production hinges not on pricing alone, but on building a robust and resilient foundation capable of withstanding aggressive global competition while fostering innovation.

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