The prices for active pharmaceuticals ingredients (API) will recover in FY27 due to the implementation of minimum import price (MIP) starting from 29 January 2026 and China’s withdrawal value-added tax (VAT) rebate from 1 April 2026, said a report from India Ratings.
The ratings agency expects volumes to strengthen with the easing destocking and an improving demand from the US and the European Union, aided by a favourable shift toward high-value contract development and manufacturing organisation (CDMO) and complex APIs.
Starting April 2026, China is abolishing or reducing export VAT rebates for 249 items, including chemicals, solar (PV) components, and batteries to curb overcapacity, reduce international trade tension, and deal with dumping.
Double Catalyst
Ind-Ra said that the withdrawal of Chinese rebates will reduce aggressive undercutting by Chinese suppliers, thereby helping maintain more stable margins for Indian API producers. “Early indicators of this were visible in third quarter of FY26, where prices per kilogram rebounded after hitting a low in the quarter before that. With Chinese exporters likely to partially pass on the effects of the rebate removal, India’s API import costs are expected to rise slightly, although the increase should remain measured,” the agency said.
“Despite MIP being implemented, a high Chinese supply is keeping prices from rising, with products still being sold below MIP. Indian companies are expected to continue encountering competition from Chinese firms in export markets, while the domestic market may experience an upward trend in API prices in the near term,” said Nishith Sanghvi, director (corporates) at Ind-Ra.
Over the past one year, domestic API companies have shown improvement in ratings driven by improved operating performance, increased profitability and strengthened credit metrics, supported by capacity expansions, and diversification into higher-margin or niche APIs, it said.
Strategic Evolution
Further, the rise in global outsourcing of pharma production will benefit API companies in India. “The trend of global biopharma outsourcing and China+1 strategy continue to generate long‑term demand for Indian CDMOs. With expanding capabilities in oncology, peptides, and high-potency API (HPAPIs), Indian players are increasingly securing longer‑tenor, more stable contracts that reinforce sustained future growth,” Ind-Ra said.
The agency however cautioned that API prices could be impacted in the short-term owing to the current volatility in crude prices and currency exchange rate due to the geopolitical situation prevailing in the Middle East.