Introduction

India produces a considerable share of the world’s generic drugs market; because one of the largest markets is the USA, it is very often called the “pharmacy of the world”.

Approx. 40% of generic drugs sold in the USA come from India, which manufactures a significant amount of pain medications, antibiotics, and cancer medications. Generic medicine manufacturers in India supply a large part of the globe with reasonably priced, high-quality drugs. 

With the changes in trade policy with the US, particularly tariffs, all stakeholders in each country must understand the effects of the tariffs on the future of this vital industry.

Understanding U.S. Tariffs and Trade Policies

In a July 31 executive order outlining global tariffs, the United States imposed a 25% levy on India, which was higher than the levy for the majority of nations. On August 6, a second order increased the tariff on Indian imports by 25%.

Pharmaceutical products, however, are excluded from the 50% tariff that the US has recently imposed on Indian goods. The US Administration’s recent Executive Order exempts the pharmaceutical industry from immediate tariff imposition. However, the policymakers and trade analysts pointed out that the exemption might not last long.

One of the largest exporters of pharmaceuticals to the United States is India. In 2024, the United States brought in around pharmaceutical products which were worth $12.7 billion from India.

Generic drugs are imperative to patient access to healthcare in the U.S. and often carry very narrow margins. In terms of patient care, stability is essential. Therefore, a better U.S.-India partnership is needed to increase healthcare resiliency and protect the active pharmaceutical ingredient (API) supply chain.

Direct Impact on Indian Generic Drug Manufacturers

The majority of prescriptions filled in the United States are for generic drugs; 90% of all prescriptions filled (approximately 3 billion) are for generics. The majority of generic drugs dispensed in the United States are manufactured in India. The importation of generic drugs from India has significantly reduced the cost of drugs in the U.S. Healthcare system.

• Higher Production Costs: If tariffs are placed on active pharmaceutical ingredients (APIs) and other raw material imported from the U.S., generic medicine manufacturers in India may face higher production costs without the ability to recoup the price increases.
• Decreasing Margins: The U.S. is a significant market for India on generics. Price increases due to tariffs may reduce the margins for generic medicine manufacturers in India.
• Supply Chain Disruption: Tariffs on intermediaries like APIs may impact the established supply chain from India to the U.S. The tariffs may cause delays in production and shipping times, and also affect the timely delivery of products to the general U.S. pharmacy market.

The U.S. currently relies on Chinese and Indian manufacturers for generic drugs (e.g., aspirin, ibuprofen, and antibiotics) because labor is cheap and the margins for pharmaceutical manufacturers are smaller with generic medications. The cost of generic medicines is identical or slightly lower than in other countries, unlike branded drugs.

Indian generic drug manufacturers may seek alternative methods to offset the cost of tariffs, as relocating to the U.S. to mitigate them may not be feasible or desirable. The tariffs may also cause these manufacturers to cut corners and ship low-quality, cheap products, which will further worsen the already severe generic drug shortage the U.S. is experiencing.

Indirect Effects on the Indian Pharmaceutical Industry

The ambiguity surrounding U.S. trade policies may impact investor confidence in the Indian pharmaceutical industry.

The large pharmaceutical companies, which get about 32% of their revenue from the US market, will be among the most impacted. Generics and specialty items like medications for dermatology and ophthalmology are both included in the portfolios of many large pharmaceutical companies. As a safeguard against the financial impact, high tariffs might force the business to depend more on its higher-margin products.

Experts on pharmaceuticals in India have stated that the new tariffs placed on Indian imports by the United States may increase medication cost, damage standard trade patterns, and hurt healthcare budgets as well. Regulatory and financial pressures could halt new drug entries, market research, and development. At the same time, lower profits from Indian pharmaceutical companies can reduce innovation rates and create challenges in getting new drugs approved.

Generic medicine manufacturers in India are seeking new market opportunities to mitigate risks; however, diversification into these new markets is a lengthy, complicated, and expensive process. Investment in new markets will require substantial investment in regulatory approval of drugs, marketing, and distribution systems.

Conclusion

For generic medicine manufacturers in India, the imposition of the U.S. tariffs presents a serious obstacle. Although there may not be an immediate impact, proactive measures are necessary due to the possibility of future tariff expansion.

For these producers to ensure a steady supply of affordable drugs for the world, they need to put effort toward expanding their export markets, increasing production efficiencies, and taking diplomatic actions.