Supported by favourable policies, rising domestic demand and shift towards complex active pharmaceutical ingredient (API), the Indian API market is projected to grow at a compounded annual growth rate (CAGR) of 5-7% through FY28, said the latest report from CareEdge.

The ratings agency said that the pharma firms are shifting from basic APIs to complex APIs with an aim to counter price erosion, strengthen margins, and customer retention. “India’s API industry, with a market size of $15-16 billion, is entering a period of steady expansion.

Over the next two years, growth will be supported by factors such as an ageing population, wider healthcare access, rising insurance penetration, and the increasing prevalence of chronic diseases. Even though the import reliance on China for key starting materials (KSMs) remains high, government initiatives are beginning to show progress,” it said.

India imports 30-35% of its API requirements

India imports 30-35% of its API requirements out of which China accounts for about 70% imports. China’s dominance in the global markets stems from decades of cost-efficient bulk manufacturing, favourable policies, and the availability of resources at low cost, reinforced by aggressive cost rationalisation strategies.

To counter this growing import reliance, the government introduced the production-linked incentive (PLI) scheme in 2020 to promote the domestic manufacture of bulk drugs. While the full impact of these measures will take time to materialise, progress is alreadyvisible with over 30 projects reaching completion, and companies such as Aurobindo Pharma Limited, Hetero Group, Macleods Pharma, Symbiotec Pharmalab inaugurating new capacities under the scheme.

CareEdge said that a key growth driver for domestic pharma is complex generics and high-potent APIs, which are essentially products that deliver strong therapeutic effects even in small doses and are increasingly central to advanced treatments.

“Indian pharma companies are steadily transitioning from pure API manufacturing to more complex and specialised areas such as high-potent APIs (HPAPIs), contract development and manufacturing (CDMO), and formulations.

Increased competition

While solely API-focused players currently face increased competition, this transition is expected to strengthen long-term pricing power, improve margins, enhance compliance, and increase customer retention,” the agency noted.

To be sure, medicine manufacturing involves 8-10 stages with key starting materials (KSMs), active pharmaceutical ingredients (APIs), and formulations as critical components. KSMs are the primary raw materials, while APIs are the active substances that make the medicines effective.

KSMs undergo multiple chemical and physical processes to produce APIs, which are then combined with inactive components (excipients) to produce finished drug forms. This is then packaged with branding and sold.

Meanwhile, the domestic API manufacturers are also modernising their production through a series of steps, including adopting technologies like artificial intelligence (AI), data analytics, nanotechnology in processes like drug discovery.