Scheme for domestic API production a good step, but the real issue is drug-price control’s side-effect on pharma upstream
It was bad policy that led to India becoming dependent on imports, largely from China, for active pharmaceutical ingredients (APIs). Indeed, the government even acknowledged this in the draft pharmaceutical policy published in 2017, in which it said, “the Drug Price (Display & Control) Order 1966 put 18 APIs (raw materials) under price control … (and) from 1996 … imported APIs and intermediates started becoming hugely lucrative as a price cap on drugs forced the manufacturers … to obtain the cheapest raw material with the basic minimum efficacy/quality”. But, that the draft policy still batted for price controls, as this newspaper had pointed out then, was evidence of the reluctance of the government to move away from populist policies that caused long-term damage—of the kind revealed by the pandemic disrupting API-flow from China, resulting in the price of many common drugs skyrocketing, even though for a short period. Thus, when the government announced the production-linked incentive (PLI) scheme for APIs, drug intermediates (DIs) and key starting materials (KSMs) to boost domestic manufacture, it was widely celebrated. The guidelines for the PLI scheme for APIs/KSMs/DIs notified recently, however, make it clear that this is, at best, the first step on a long path.
The guidelines and a presentation of the Pharma Bureau—set up by the Union government for interface with the pharma industry—make it clear that the incentive scheme will be quite limited in scope. It seeks to encourage the production of 41 chemicals that are key to 53 APIs, and the incentive, to be given over six years, will be linked to threshold investment and incremental sales over the base year, with applicants being selected on the basis of capacity of the proposed plant (threshold listed for each chemical) and sale price of the API. A maximum of 136 applicants are to be selected—though, an applicant can apply for multiple products, with additional investment for each product. The maximum incentive for each applicant is capped for each chemical across the four categories: key fermentation-based KSMs/DIs, fermentation-based KSMs/Dis/APIs, key chemical synthesis based KSMs/DIs and other chemical synthesis based KSMs/Dis/APIs. The government will have to realise that Chinese API-makers have been able to keep costs low because of, among other things, scale; whether the PLI scheme encourages this, with big companies bidding for multiple products/units, or whether the attempt (with the capping of incentives) is to have a larger pool of participants at the cost of economies of scale, remains to be seen.
The PLI scheme, however, will not be able to enthuse pharma manufacturing by itself. For meaningful atmanirbharta on APIs, the government will have to face the facts on drug-price control and its impact on upstream activities in the value-chain. With the scope of the Drug Pricing Control Order expanding over time, Indian drugmakers have been virtually forced into buying API from the Chinese. Given drug prices in India are already among one of the world’s lowest, price control simply doesn’t make sense. It doesn’t seem to work either; the latest Economic Survey points out that the prices of drugs that came under DPCO 2013 increased by RS 71 per mg of API on an average versus Rs 13 per mg of API for drugs outside the order.
Apart from drug price control, as long as problems in getting land, delays in approvals, lack of public spending on R&D for transfer to industry, etc, are not fixed, a PLI-scheme like the one the Union government has come up with will not be sufficient.