Will Trump’s tariffs assail Indian pharma, or can it sail through?

Trump tariffs: What's at stake for Indian pharma companies

For years, large and medium Indian drugmakers have banked on generic drug exports to the US for growth. While the American market is attractive given its healthy profit margins, it comes with its share of regulatory scrutiny and pricing pressure.

But today, Indian pharma is staring at a far greater challenge — the Trump administration slapping a 25 percent tariff.

Even though the finer details of this have not yet emerged, we enumerate below what is at stake for Indian pharma companies and whether they can mitigate the impact of this move. Americans are naturally concerned that such a tariff will raise the cost of their life-saving drugs.

The duties as we speak

Currently, Indian companies exporting to the US face almost zero import duty. India, on other hand, imposes about 10 percent tax on pharma imports from the US. Comparing Indian exports to US imports is like chalk and cheese. India largely exports low cost generic drugs, whereas the US exports are mostly patented and innovative drugs.

In 2024, India exported drugs worth around $8.73 billion to the US —  about 31 percent of its total pharma exports. In the same period, the US exported $635.37 million worth of pharmaceuticals to India. If US President Trump does indeed slap reciprocal tariffs on India as he's threatening to, India stands to lose more.

What's at stake for Indian pharma

A lot. The BSE Healthcare index , which is heavily skewed towards pharma firms, lost almost 13 percent this year while the benchmark Sensex lost 4 percent. India accounts for 60–65 percent of US generic drug volumes, and the country contributes between 25-50 percent  of the revenues of major pharma companies.

According to an HSBC report, a 10 percent tariff on pharma imports could impact the earnings of Indian pharma companies, with Dr Reddy’s seeing  a 6.5 percent reduction in its earnings per share (EPS), followed by 6 percent for Zydus Lifesciences, 5.5 percent for Aurobindo Pharma, 4.5 percent for Lupin, and 4 percent for Cipla . Sun Pharma and Torrent Pharma are likely to be less affected, with EPS reductions of 1 and 0.8 percent, respectively.

How will it affect American patients?

Such a move  will trigger healthcare inflation in the US. According to analytics firm IQVIA, between 2013 and 2022, Indian generic medicines saved the US healthcare system $1.3 trillion. In 2022, Indian companies supplied 47 percent of all generic drugs in the US, saving the healthcare system $219 billion. These are significant savings as the US runs a bloated healthcare budget.

The country spent a whopping $4.9 trillion on healthcare, or 17.6 percent of its GDP  in 2023. The tariffs will also lead to supply chain disruptions and drug shortages as companies will have to pull out medicines with wafer thin margins.

How can Indian companies manage this?
By passing on the cost of tariffs to the US patient. Dilip Shanghvi, the MD of India's largest drug maker, Sun Pharma, said  at a recent event that if the US imposes tariffs, the extra costs will be passed on to consumers.

Indian pharma can also invest in building a manufacturing base in the US. Indian drug firms such as Lupin, Cipla, Sun Pharma, Glenmark, Aurobindo Pharma, and Dr Reddy's already have manufacturing facilities in the US, which gives them some protection against tariffs. But a 25 percent tariff on import of APIs (active pharmaceutical ingredients, the main component of a drug) is still going to be a big problem. Also, manufacturing in the US is not feasible for commoditised generic drugs with wafer thin margins.

Another option is to expand beyond the US market. But though India pharma is increasingly focussing on reducing dependence on America, the US remains by far the largest market for pharmaceuticals.

But for now Indian pharma executives are in a wait and watch mode.

"We've heard that some of these tariffs are getting postponed, but it's extremely hard to predict how this will all play out in the long run," said Glenn Saldanha, Chairman and Managing Director, Glenmark, during the company's recent earnings call.

Indian pharma  is also hoping for an early execution of a proposed India-US trade deal that's in the works.