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In today’s episode on 24th October 2025, we tell you why the world’s pharmacy still needs China’s chemistry and what India can do to catch up.
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Hello folks, you're listening to Fincharts Daily and in today's episode, we tell you why the world's pharmacy still needs China's chemistry and what India can do to catch up.
Before we begin, here's a quick word from Team Ditto. Life has a way of surprising us and not always in a good way. Sometimes it's a sudden illness or an unexpected hospital visit that can shake up everything. In India, families still pay about 39% of medical expenses directly from their own pockets and just one hospital's take can wipe out years of savings. The easiest way to protect yourself is by getting a good health insurance plan. It's way cheaper than footing one huge bill. And if you're unaware where to start, book a free call with Ditto. No spam, just honest, jargon-free guidance. Trusted by over 8 lakh people for their health and term insurance needs. The link is in the description. Now, back to the story. India loves to call itself the pharmacy of the world and that's not without reason.
We make and export generic drugs to over 200 countries. But beneath the success story lies an uncomfortable truth. That the pharmacy depends on another supplier for its raw materials. Yes, because India does make the pills, but it doesn't make enough of the ingredients that make those pills work. Those ingredients are called APIs or active pharmaceutical ingredients, which are the core chemicals that give a drug its therapeutic effect. And to make those APIs, you need something called key starting materials or KSMs, which are the high-quality raw inputs used in the early stages of production. So, think of APIs as a cake and KSMs as a flour and butter that go into baking it.
For many critical APIs or KSMs, our import dependence is 60 to 70% on China and in some cases, that number is close to 100%. Now, this dependency wasn't built overnight. It's a result of decades of economic drift. Back in 1980s, India produced most of its APIs domestically. But over time, environmental regulations, high energy costs and the rise of cheaper Chinese imports made many plants simply unviable. So, by the early 2000s, it was logically more profitable to focus on formulations or the so-called finished drugs than making the chemistry behind them. And that's how Indian manufacturers quietly outsourced that part of the chain to China.
And honestly, for a while, no one noticed until the pandemic hit. When Chinese factories shut down, prices of common APIs like Paracetamol and Azithromycin spiked overnight. The supply chain froze, production slowed, and the world's pharmacy discovered it didn't control its own shelves. Which brings us to the question, what did we do or are doing to address this bottleneck? Well, the government's response has been to roll out a 7,000 crore production-linked incentive, or PLI scheme, to rebuild domestic API capacity. And as a part of this, it approved building three bulk drug parks in Gujarat, Andhra Pradesh and Himachal Pradesh, and pushed companies to restart manufacturing of certain compounds or fermentation-based antibiotics.
Take, for instance, Auramindha Pharma. They recently commissioned a 2,400 crore plant to produce Penicillin G, an antibiotic used to treat a wide range of bacterial infections. Similarly, several companies such as Alchem Labs and Sun Pharma have started producing Clavonic Acid, the primary ingredient in Augmentin, another antibiotic. In just the last two years, since the start of PLI scheme, we've had close to 3,000 crore worth of investments from various companies to start producing APIs and KSMs. But was this enough to seize the dependence on China? Well, not really, and let me explain why. China has been a leader in this segment for the last few decades,
which means it has achieved economies of scale that is having the know-how to produce these items economically and at a large scale. But how did China get to this scale, you ask? By treating pharmaceuticals as a strategic industry as far back as the 1990s and into the 2000s. It offered cheap land, reliable utilities, low-interest loans and export-linked tax incentives to drug manufacturers. And gradually, thousands of small and mid-sized API producers crowded across provinces like Jigunshu, Zhejiang and Shandong. However, the real turning point came when China integrated environmental compliance into its supply chain. This was when many Western countries scaled back bulk drug production due to concerns about pollution,
and China filled that gap by building dedicated chemical Parks with centralized waste treatment. It also built an ecosystem where K S M producers, intermediate processors and A P I manufacturers operated in close proximity. So logistics costs can be slashed drastically. But China's rise wasn't just about policy, it was also about resources. You see, many of the ingredients used in pharmaceutical chemistry rely on certain minerals and specialty chemicals. These elements are used in everything from catalysts in fermentation to the purification of compounds. They are essential for producing high purity A P I's on a large scale and China holds a near monopoly on that front.
It controls roughly sixty to seventy percent of global rare earth mining and has a near monopoly on its processing. This means that apart from having cheaper access to these materials, Chinese manufacturers also have an almost guaranteed access to process specialty chemicals and minerals. Now, this kind of policy makes it very unstable to open a pharmaceutical manufacturing facility outside of China and to maintain continuous access to the raw ingredients needed to produce A P I's at a competitive price. Apart from policy and raw materials, China has another advantage, labor. As per a World Bank study, if a typical Western A P I company has an average wage index of hundred, this index is as low as eight for a Chinese company and ten for an Indian company.
This means that if a Western company pays its workers hundred rupees for a certain amount of work, a Chinese company would only pay about eight rupees and an Indian company would pay about ten rupees for the same job. And lastly, there's just one more advantage where China really takes the home run and that is infrastructure. Since industrial clusters in China integrate chemicals, solvents, utilities and waste treatment, the A P I plants can buy cheap steam, power and intermediates next door. All while India's units face higher input costs and patchy utilities despite progress in the new parks. So there you have it, public policy, rare earth minerals, labor and infrastructure.
In a nutshell, these four factors are why China has built a thriving A P I manufacturing industry. You could say that they mastered the chemistry, the scale and the economics that make the drug industry stick. Meanwhile, India mastered the branding and distribution that took it to the world. We excel at finished medicine but at the most energy and capital intensive stages like fermentation and key intermediates, we seeded ground decades ago. And building that lost chain takes time. It needs reliability and scale, the kind that can't be faked with pilot runs or short-term subsidies. And it needs trust because global buyers, especially in the US and EU, now demand stricter traceability, cleaner production and consistent quality.
All the things that can raise costs just as Chinese suppliers discount to defend their share. Still, India has a short worth fighting. It doesn't need to replace China entirely but just reduce its vulnerability by delivering on low-cost utility drugs from the bulk drug parks we spoke of above. Plus, if big formulations sign multi-year purchase deals and if we double down on high import risk APIs like antibiotics and vitamins, we could build an ecosystem where chemistry becomes as much our strength as formulations once did. Moreover, we can also prioritize fermentation and high import risk molecules under PLI while encouraging domestic intermediates to cut Chinese feedstock dependence.
And lastly, enforce quality and build traceability to win premium buyers. Done well, these can help derisk the choke points that we face today and anchor a resilient base that lets the world's pharmacy stand on more of its own raw materials. And maybe that's a real test for India's chemical and pharma future. What do you think? I'll see you in the next one.
Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected]. Until next time.
Page updated November 10, 2026 · transcript and summary are machine-generated
