India pharma’s China supply chain and US market reliance under strain

By: Team India Tracker

For now, India’s pharma sector remains competitive, but its foundations are more fragile. The ‘source and destination’ imbalance points to deeper structural gaps in domestic capability and global positioning

India’s pharmaceutical industry, long celebrated as the “pharmacy of the world”, is confronting a structural contradiction that is becoming harder to ignore. When Commerce Secretary Rajesh Agarwal called for reducing dependence on Chinese inputs and diversifying export markets beyond the United States, he was not merely offering policy advice—he was highlighting a systemic risk embedded within the sector’s growth model.

At the heart of the issue lies a stark concentration imbalance. The United States continues to dominate as India’s largest export destination, accounting for 30.48 per cent of total pharmaceutical exports in FY26 (April–February). The drop-off after that is steep: Brazil, the second-largest market, contributes just 2.91 per cent, followed closely by the UK at 2.88 per cent. Such skewed distribution underscores a clear reality—India’s export success is disproportionately tied to a single geography.

The supply side mirrors this dependence, but with a different partner. China accounts for 38.08 per cent of India’s pharmaceutical imports, far outpacing other sources such as the US (8.75 per cent) and Switzerland (6.57 per cent). This creates a tight and potentially fragile loop: India relies heavily on Chinese raw materials, particularly active pharmaceutical ingredients (APIs), to produce formulations that are then exported largely to the US market.

This dual dependence—on China for inputs and the US for demand—creates a structural vulnerability that leaves the sector exposed to disruptions on both ends of the value chain. In an era marked by geopolitical tensions, trade realignments and supply chain fragmentation, such asymmetry is increasingly untenable.

The deeper concern is not just dependence, but the nature of value creation within the industry. Data indicate that foreign inputs account for a growing share of India’s pharmaceutical output. In 2022, China alone contributed over 20 per cent of the total foreign value addition embedded in India’s domestic pharmaceutical demand, followed by the US (12.58 per cent) and Ireland (11.16 per cent). This suggests that even domestic consumption is significantly reliant on imported intermediates.

The export story offers little comfort. The share of foreign value addition in India’s pharmaceutical exports rose to a record 26.35 per cent in 2022. In effect, more than a quarter of the value embedded in India’s exports originates outside the country. This weakens the narrative of India as a fully integrated manufacturing powerhouse and raises questions about the depth of its domestic capabilities.

Equally telling is India’s declining role in global value chains. The share of domestic value addition in foreign demand for pharmaceutical products has fallen from 36.79 per cent in 2012 to 29.28 per cent in 2022. This trend suggests a gradual shift in India’s position—from a value creator to a value assembler—within the global pharmaceutical ecosystem.

The implications are significant. While India continues to excel in formulations and finished drug exports, its upstream capabilities—especially in APIs and key intermediates—have eroded over time. This hollowing out of domestic manufacturing in critical segments has increased reliance on imports, particularly from China, where cost advantages and scale continue to dominate.

It is this structural imbalance that policymakers are now seeking to address. The risks are no longer theoretical. Any disruption in Chinese supply chains—whether due to geopolitical tensions, regulatory changes or logistical bottlenecks—can directly impact production in India. Similarly, any shift in the US market, including pricing pressures, stricter regulatory norms or protectionist measures, can dent export revenues.

The global context amplifies these concerns. Supply chains are increasingly being reshaped along strategic lines, with countries prioritising resilience over efficiency. Pharmaceuticals, given their critical role in public health and national security, are at the centre of this shift.

The policy response, therefore, needs to be both immediate and structural. Reducing import dependence will require a renewed push towards domestic manufacturing of APIs and intermediates, backed by targeted incentives and long-term investment. Schemes aimed at boosting bulk drug parks and production-linked incentives are steps in this direction, but execution will be key.

At the same time, export diversification must become a strategic priority. While the US market will remain crucial, expanding presence in emerging markets, Europe and other developed economies can help mitigate concentration risks. This, however, will require navigating complex regulatory landscapes and building competitive positioning across geographies.

A parallel shift towards higher value segments—such as complex generics, biosimilars and innovative therapies—can also strengthen domestic value addition and reduce reliance on imported inputs. But such a transition demands sustained investment in research and development, regulatory capabilities and infrastructure.

For now, India’s pharmaceutical sector remains globally competitive, but its underlying structure is more fragile than headline export numbers suggest. The “source and destination” problem is not merely a trade imbalance; it is a reflection of deeper structural gaps in domestic capability and global positioning.

Addressing it will determine whether India can sustain its status as a global pharmaceutical leader—or remain exposed to the shifting fault lines of an increasingly fragmented world.