Reji K Joseph
Until the onset of COVID-19, economic efficiency was the dominant consideration that drove the growth of global supply networks. The pandemic, however, exposed the national security implications of excessive reliance on foreign supplies, especially on a single country, in crucial sectors such as pharmaceuticals.
Now, there is an outcry in many countries to reduce dependence on foreign suppliers on active pharmaceutical ingredients (APIs) which are critical inputs into the production of dosified medicines. As the world is looming at the possibility of a world order characterised by a China-Russia axis, national security considerations will increasingly influence economic decisions.
But when it comes to the health sector, countries are also faced with the challenge of ensuring affordability of medicines. The US President recently renewed his call for reducing the cost of prescription drugs. In February, the Massachusetts Senate passed a Bill that aims capping the price of certain medicines. Similarly, Japan where the price of medicines is regulated will find it tough if API prices increase. Therefore, sourcing from cheaper options will continue, but leading countries are looking for diversification of supply sources, or looking at the China-plus one approach. India has all the potential, being the pharmacy of the world, to become the centre of this diversification strategy.
India’s excessive reliance on China for key starting materials (KSMs) and some APIs makes India less appealing to those countries which look for diversification of supply sources. On this aspect, the Joe Biden administration’s 100 Days Reviews on Building Resilient Supply Chains, Revitalising American Manufacturing, and Fostering Broad-Based Growth makes it explicit, “India, which supplies approximately 40 percent of generic pharmaceuticals used in the United States, imports nearly 70 percent of its APIs from China”.
Therefore, the Indian pharmaceutical industry becoming self-reliant and competitive in the KSMs and the APIs is critical for its sustenance, and the drug security of the world. The PLI Scheme 1.0 in the pharmaceutical sector, which aims to reduce import dependence, is still struggling to find beneficiaries. In January, the Department of Pharmaceuticals has re-invited the applications for 10 out of the 41 products (24 percent) covered by the scheme, for the second time. This shows that financial incentives for expanding production alone will not achieve the objective of reducing import dependence.
The superior process technologies developed by the Chinese manufacturers have played an important role in reducing their cost of production. Development of new process technologies is important in making the API production in India competitive. More importantly, advanced manufacturing technologies can help in reducing the cost and time. A shift from traditional batch manufacturing to continuous manufacturing, wherein the APIs and dosage forms are produced as a continuous stream, is something that the industry needs to be encouraged to adopt.
Similarly, 3D printing can reduce the cost considerably. Although such technologies are used widely in the automobile and semiconductor sectors, globally, the pharmaceutical sector is just beginning to use them.
Incentive schemes and support systems should be put in place to ensure that the pharmaceuticals industry in India embraces such technologies at the earliest. Recognition of pharmaceuticals as a sunrise industry in the Union Budget gives the right signal, and it needs to be followed up by clear action plans.
India also needs to promote its deep technology startup ecosystem for the development of suitable advanced manufacturing technologies; not just for the pharmaceuticals sector. Deep technology startups typically use artificial intelligence, machine learning, augmented reality, virtual reality, IoT, blockchain, robotics, 3D printing, quantum computing, and big data and analytics. These technologies find application in various industrial sectors such as pharmaceuticals, medical devices, automobiles, and agriculture, and have a high potential for the creation of intellectual property.
Data on patents granted to startups in India, an indicator of creation of intellectual property, is not encouraging. The share of patent filings by startups has increased from 0.5 percent in 2016-17 to 2.4 percent in 2020-21. But what really matters is the patents granted and on that count, the share of startups has in fact declined from 0.4 percent to 0.1 percent during the same period.
Strong government interventions are needed to create a conducive ecosystem where deep tech startups can grow. A major challenge facing them is lack of patient funds. The gestation period for such technologies is longer as compared to commercial technologies, and investors who look for quick returns tend to shun the deep-tech startups.
Reji K Joseph is Associate Professor, Institute for Studies in Industrial Development, New Delhi. Views are personal, and do not represent the stand of this publication.