There are around 7,000 active pharmaceutical ingredient manufacturers in China which provide raw material to 80 percent of drug makers in India.
The Chinese government is cracking down on thousands of pharma factories to check pollution and raise safety standards in the country. While this is great news for the environment, it could lead to a shortage of medicines in India. Here's a three-point analysis of the decision and its impact on the industry.
To begin with, we need to find out what China has to do with the Indian pharma industry. There are around 7,000 active pharmaceutical ingredient manufacturers in China that provide raw material to around 80 percent of Indian drug makers. If these factories are shut, pharma companies in India will have to look for alternative raw material suppliers, within a very short span of time.
Secondly, we need to understand why Chinese active pharmaceutical ingredient (API) manufacturers are facing a crisis. Media reports suggest that an estimated 40 percent of all factories in China have been shut over the last one year to be inspected by environmental bureau officials. This has resulted in orders being missed or delayed, which has led to a rise in costs.
The rising cost of manpower in China and higher crude oil prices have pushed the price of raw material higher.
Lastly, the impact of the Chinese government's decision will have an impact on manufacturers as well as consumers in India. If the cost of raw material climbs, so will the cost of medicines. To make matters worse, drug makers in India cannot pass on the rise in production costs to consumers as drug prices are mostly regulated by the government.
So while companies are looking for alternative API vendors, the current disruption in supply chain could lead to shortage of drugs. Companies could stop manufacturing certain drugs, over pricing issues as they could not be financially viable.Nonetheless, the Pharmaceutical Wholesalers Association in Mumbai has said that as of now things are under control and there is no reason to panic.