Active Pharmaceutical Ingredient (API) is one of the important segments of the pharma business that makes up about 35% of the market. According to World Health Organization, API is any drug or mixture of drugs employed in a finished pharmaceutical product (or FPP) to provide pharmacological activity or to otherwise have direct action in the diagnosis, cure, mitigation, treatment, or prevention of disease, or to have an immediate effect in restoring, correcting, or altering physiological functions in human beings.
India is the 3rd largest API producer with an 8% share in the global API industry. More than 500 various APIs are produced in India, and it supplies 57% of APIs to the prequalified list of the WHO. Indian API industry is projected to grow at a CAGR of 13.7% over the first four years, roughly 8% more than the generic API market. The Indian API industry has been a profitable market for many venture capitalists and investors. India’s strong domestic market, progressive chemical industry, skilled workers, high quality and manufacturing standards, and low costs (approximately 40% lower than in the West) for setting up and operating a modern plant provide an added advantage.
The intensifying rivalry between the West and China has compelled the international pharma giants to source more from nations other than China. India has emerged as a remarkable alternate source of bulk drugs.
Production & Supply Volume
Global Production Capacity and Major Manufacturers:
Indian major manufacturers such as Sun Pharma, Dr. Reddy’s Laboratories, Cipla, and Aurobindo Pharma continue to innovate and expand the market.
Production Process and Technological Developments:
Indian API manufacturers are increasingly using advanced technologies such as continuous manufacturing and automation to increase efficiency and compliance. Focus on Quality by Design (QbD) and compliance with Good Manufacturing Practices (GMP) are becoming normative practices to address global regulatory needs.
Government of India Schemes and Initiatives
Production-Linked Incentive (PLI) Scheme for API Production: The Indian government in 2024 continued to promote domestic production of APIs through the PLI scheme with the goal of minimizing imports and increasing self-reliance in strategic APIs. The scheme is likely to facilitate the setup of 25 new API production facilities, boosting domestic capacity. As of June 2024, the PLI scheme for pharma had drawn an actual investment of Rs. 29,268 crore ($3.5 billion), leading to Rs. 161,209 crore ($19.3 billion) worth of production and generating 71,763 jobs. The DoP sanctioned 55 out of 278 applications, with 261 manufacturing sites commissioned until then.
Setting up of Bulk Drug Parks: The government’s proposal to create three new bulk drug parks within the period from 2024, with an investment of $1.5 billion, is a major step to enhance the API manufacturing ecosystem in India. The parks will have common infrastructure facilities that will lower the cost of production and make Indian API manufacturers more competitive.
Top 10 Indian API Manufacturers (2025)
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Cost breakup and comparison between India & China
Cost of production and breakup comprise set-up, logistics, finance, and production cost. China is in a position to capture market position through investment in infrastructure, large-scale production capacities, cost-effectiveness, technical expertise, and supportive government policies, among others. Production costs in China are estimated to be around 20-30% less than in India. Raw material cost is 25-30% higher in India than in China. The cost of labor in India is 1.85% lower than in China. Raw material cost constitutes nearly two-thirds of the manufacturing cost of API products.
India vs China – Manufacturing capacity for selected APIs
Price Analysis
In 2025, API prices in India have been undergoing price variations on the back of international demand-supply trends. For instance, the price of Paracetamol has dropped in the U.S. market on the back of weak demand due to high inventory levels.
Price Variation Determinants:
Some of the significant determinants of API prices are:
Raw Material Costs: Import reliance, particularly from China, influences pricing. Significantly, China’s export value to India for API intermediates fell to $550.32 million during the 2023-2024 financial year, a decline of about 30.4%.
Trade Analysis: Import & Export Dynamics
India supplies APIs to more than 200 nations, with the U.S., Europe, and developing countries of Africa and Asia being major markets. On the other hand, China is a major source for API intermediates, however, attempts are made to diversify the sources of imports.
Trade Volume & Value Statistics:
India’s exports of goods and services crossed $820 billion in 2024-25, a growth of almost 5.5% from the previous year. The pharmaceutical industry is a major contributor to this number, reflecting its competitiveness on the international front.
Effect of Trade Policies & Regulations
World trade policy, tariffs, and non-tariff measures shape Indian API exports. As an instance, whereas Indian imports faced a tariff of 26% in the U.S., the pharma sector remained almost untouched due to its imperative importance in medicine.
Regional Price Comparison:
API prices differ around the world because of local production capacity and regulatory regimes. Asia-Pacific, where India and China are located, tends to have more competitive pricing than North America and Europe, where regulations are strict and labor is more expensive.
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Challenges faced by the Indian API industry
Indian API manufacturers lost their competitive edge in the manufacture of APIs at the lower end of the spectrum and in fermentation technologies.
- Stricter implementation of pollution control norms: This is resulting in increased manufacturing costs of APIs in India. According to the existing norms, firms need to undergo a new approval process each time they need to introduce a change in the product mix, a process that can last up to 4 months. For production increase or the addition of machinery, it may be 8 months or even longer.
- Interpretation of DPCO, 2013: To deal with decisions involving scheduled vs non-scheduled formulations, new drugs, demand notices for overcharging, and more. Indian pharma firms had to develop business strategies to go up the value chain and concentrate on commercially viable segments such as finished formulations and complex-to-produce APIs. Domestic formulation participants thereby began importing raw materials and basic APIs from cost-effective regions such as China, which has contributed to greater reliance on a single source and massive price swings in APIs.
- No tax incentives, increased utilities, and borrowing costs: Non-availability of tax Incentives to increase API parks, increased cost of borrowing and utilities (such as electricity, water, steam), and low import duties have resulted in lower cost imports from giant plants in China, that had economies of scale.
- Lack of mega bulk drug parks: Absence of large clusters for bulk drug production with common facilities for pollution control, effluent treatment, and a single environmental clearance results in increased capex requirement.
- Problems encountered by the fermentation industry: Initially, massive capacity was created by the public and private sectors to meet increasing demand. Nevertheless, due to the low rates, large amounts were being imported from China, which compelled local producers to stop production due to commercial unviability. Since China is the only producer of penicillin, it has begun producing 6-APA, 7-ADCA, and 7-ACCA intermediates from penicillin G and thus has priced penicillin strategically, making even the production of such intermediates uneconomical in India.
Solutions to revive the Indian API industry
India requires an overall and supportive ecosystem to leverage the full potential of its API production capabilities. A supportive financial and regulatory ecosystem and policies will likely make the API industry capable of making India self-reliant in health security.
Immediate
- Quicker environment clearance
- Facilitate the production of important APIs/intermediates and fermentation products by offering a fiscal boost
- Accommodative price policy under DPCO 13
- Financial incentives
Long term
- Develop large clusters and offer plug-and-play infrastructural support in dedicated zones for the production of APIs
- Industry–academia initiatives
- Provide alternative sources of import
Recent Developments
- In February 2024, Cipla intends to go after U.S. acquisitions and alliances, expand in India, drive European growth, and enhance profitability in South Africa. The company is focusing on resolving USFDA observations, expanding its private and targeted tender business, de-risking key launches, and overcoming regulatory issues at its manufacturing sites.
- In April 2024, Zydus Lifesciences was scrutinized by the US FDA, which made 10 observations after inspecting the injectable manufacturing facility of the company near Vadodara, Gujarat. The inspection was conducted between April 15 and April 23, 2024. Zydus Lifesciences has promised to resolve these observations at the earliest in coordination with the US FDA.
