GSP withdrawal by US may have marginal impact on Indian pharma exporters

The withdrawal of the Generalized System of Preferences (GSP) benefits by the US could have an impact of 4-5 percent on margins of Indian pharmaceutical companies exporting drugs to the country.

GSP is preferential duty-free access given by developed nations to developing countries. As many as 3,500 products are eligible to get GSP concessions but India exports about 2,000 items including pharmaceuticals.

“It does impact pharmaceutical, but very marginally,” said Dinesh Dua, Chairman of Pharmaceuticals Export Promotion Council (Pharmexcil) – the agency under Department of Commerce for promotion of pharmaceutical exports.

“In fact, if you see the price spread, ex-factory dispatch price versus warehousing price/distribution price in the US, it doesn't impact more than 4-5 percent,” Dua said.

Dua added the impact on certain molecules like blood pressure drug valsartan could be higher.

India exported pharmaceuticals worth of $6.3 billion to the US in 2018, according to data published by Office of the United States Trade Representative (USTR).

Indian companies on an average enjoy margins of around 35-40 percent in the US, and in some instances, due to low competition or marketing exclusivity, the margins go up as high as 60-65 percent.

Dua said the companies will have to pass on the cost to their customers or lower their operating costs to nullify whatever hit they take on their margins.

Industry body Indian Pharmaceutical Alliance (IPA) concurred with Dua.

“The impact on formulations that constitute 90 percent of US sales would be very small,” said Archana Jatkar Associate Secretary General, Indian Pharmaceutical Alliance (IPA).

Sun Pharmaceutical Industries, Aurobindo Pharma, Lupin and Dr Reddy's Laboratories are the biggest exporters.

The US government move to withdraw GSP benefits could be partly due to efforts of US medical devices and drug lobbies, though there could be several other factors that could have influenced the decision.

Trade bodies such as AdvaMed that represent medical devices and Pharmaceutical Research and Manufacturers of America (PhRMA) have been insisting USTR reconsider GSP benefits given to India, for failing to provide equitable and reasonable access to its markets.

AdvaMed had petitioned USTR to withdraw GSP benefits, alleging government actions such as price controls discriminate against the import of high-technology products and force US producer to sell in India at a loss.

India imposed a price ceiling on coronary stents and knee implants. negatively affecting US companies. US manufacturers exported medical devices worth $1.6 billion to India in 2018.

PhRMA in its submission before USTR early this year named India for not providing adequate and effective protection of intellectual property rights or fair and equitable market access for their products.