Why India's pharma industry could be staring at price increases and job cuts

Even as the common man continues to keep his fingers crossed over the energy situation in the country, thanks to the volatile geopolitical situation in West Asia, a worse shock may hit him hard from another quarter.

Sources in the pharma industry say a drug price hike is becoming inevitable due to the crisis in West Asia, and the Centre has been requested to allow them to carry out the revisions if there is no other way out.

Customs duty exemption

The sources further said the Centre’s decision to implement a three-month exemption (up to June 30) on customs duty for certain petrochemical products to ensure uninterrupted availability of critical raw materials for domestic industries, including pharmaceuticals, and ease input costs, is not helping them. According to them, the suppliers have failed to pass on the benefits.

Also read: Telangana’s pharma giants prepare for massive hit amid West Asia crisis

The possibilities of job cuts are also looming large.

While the current ceasefire of two weeks has provided the industry a temporary relief, companies located in the Parawada industrial zone near Visakhapatnam have already issued warnings that if the situation doesn’t improve soon, they may have to resort to slashing employment.

Jatish Sheth, director of Srushti Pharmaceuticals, told The Federal Telangana that prices of various raw materials have gone up anywhere between 20 and 50 per cent, and there is also a shortage.

Shortage besides price hike

“Along with the price hikes, a shortage of these materials has also begun. We are hopeful that a 15-day ceasefire will help stabilise the situation. We will not raise medicine prices immediately; however, we have already written to the government seeking permission to increase prices should the situation fail to improve,” said Sheth, who is also the secretary general of the Confederation of Indian Pharmaceutical Industry, Delhi.

According to him, the impact of the current conflict would prove to be worse than that in Ukraine.

The Bulk Drugs Manufacturers Association of India (BDMAI), headquartered in Hyderabad, has welcomed the reduction in customs duties on raw materials. In a letter to Commerce Secretary Rajesh Agarwal, dated April 4, the BDMAI said the raw materials price rise has not happened just because of the supply challenges. Prices have gone up, too.

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Ch AP Rameswara Rao, national president of the BDMAI, told The Federal Telangana, “The prices of APIs (active pharmaceutical ingredients) and intermediates have surged by 50 to 180 per cent. We remain committed to the agreements already established for supplying to international markets.

“At the same time, we will ensure that there are no disruptions to the domestic supply of medicines. The companies affiliated with our organisation procure their raw materials from traders.”

Traders trying to make unfair gains?

Traders have also suspended credit facilities that had previously been extended up to 180 days. The pharma companies are now being forced to pay exorbitant rates to procure raw materials, said the industry sources.

The BDMAI letter urged the government to take note and guarantee an equitable supply of materials to all stakeholders.

Noting that the supply chains have been disrupted by the suspension of trade activities in the Strait of Hormuz and the Red Sea, Sudarshan Jain, secretary general of the Indian Pharmaceutical Alliance, Mumbai, expressed hope that the current ceasefire would bring some relief.

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“Air freight charges have doubled, and surcharges on sea routes have increased by $4,000 to $8,000, depending on the cargo. Insurance premiums have risen, and cargo delivery times have lengthened. Currency fluctuations, increased logistics costs, and disruptions to exports to Central Asia and North Africa are creating significant hurdles. Consequently, the profit margins of generic drug manufacturers will be adversely affected. This poses a threat to the very survival of these companies,” he said.

Jain also cautioned that in such a situation, the drug industry would require support for a long period, spanning several months.

Long-term support

K Raja Bhanu, director general of the Pharmaceuticals Export Promotion Council of India (Pharmexil), said companies generally maintain a stock of raw materials that can support them for three months. With the current crisis going beyond a month, the companies are treading cautiously with their production.

“Efforts are underway to resolve the issues affecting the supply chain. Measures are being taken to curb market chaos and illegal stockpiling, while simultaneously addressing supply-related challenges. The central government is in constant consultation with the industry,” he added.

According to V Siva Rama Raju, treasurer of the Jawaharlal Nehru Pharma City (JNPC) Industries Association, the impact of the current situation is clearly evident in the Parawada industrial zone, where production has already taken a hit by 25 to 30 per cent.

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“The price of locally produced sulfuric acid has risen from Rs 26 to Rs 32. Although the Centre has reduced customs duties on imported goods, the importers are not passing on this benefit to the industries. Already, 15,000 daily-wage workers have lost their jobs. If this situation persists, we will be forced to lay off 25,000 permanent employees,” he cautioned.

Job generator

The Parawada Pharma City in Visakhapatnam, which provided employment to 3,000 workers in 2009, today provides livelihoods to 40,000 people.

Over the past 18 years, this industrial park has grown significantly, supplying raw materials—including APIs and intermediates—to 75 countries. Approximately 92 companies currently operate their facilities from this location. Subba Rao, joint secretary of the JNPC Manufacturers Association, stated that industries that had been operating smoothly until now are inevitably facing hardships due to the war.

Shiva Rama Raju expressed concern that the problems currently being faced by small-scale industries would soon be faced by the bigger companies as well.

While it is estimated that the value of the Indian pharmaceutical sector will rise from $60 billion (Rs 5.56 lakh crore) to $130 billion (Rs 12.05 lakh crore) by 2030, will the West Asian crisis peg things back?

(The article was originally published in The Federal Telangana.)