IAS/UPSC Coaching Institute  

01 Jan 2026 : The U.S. tariff shock, India’s pharma future

 Editorial 2: ​The U.S. tariff shock, India’s pharma future

Context

India’s generics strength cushions risks, but diversification and reforms are essential.

 

Introduction

In September 2025, U.S. President Donald Trump announced a sweeping 100% tariff on branded and patented pharmaceutical imports, effective October 1, 2025, placing India’s pharmaceutical industry—often described as the “pharmacy of the world”—at a critical juncture. Framed as a push to strengthen U.S. domestic manufacturing, the move risks disrupting global supply chains that have saved the U.S. health-care system billions, while also threatening India’s export-driven growth.

  • At the same time, India’s stronghold in generic medicines provides an important cushion, even as the situation highlights the pressing need for market diversification and domestic policy reforms.
  • With pharma exports to the U.S. nearing $9 billion in FY2025, reflecting a 14.29% year-on-year increase, the implications are significant for India’s $50 billion pharmaceutical sector, which contributes about 1.72% to national GDP.

 

Global Market Overview

  • Global pharmaceutical exports exceeded $850 billion (2024), driven by ageing populations, chronic diseases, and post-COVID innovation
  • Germany ($119.85 bn), Switzerland ($99.08 bn), and the United States ($90.30 bn) led exports in 2023–24
  • The U.S. emerged as the largest importer with $212.67 bn (2024), followed by Switzerland, Germany, Belgium, and China
  • The European Union recorded €313.4 bn in medicinal exports in 2024, a 13.5% rise, signalling resilience amid geopolitical tensions
  • India, the third-largest exporter by volume, expanded exports from $27 bn (2023) to $30.47 bn (FY25)

 

Generics, Risks and Growth Impact

  • Generics dominate India’s exports, accounting for 70% of shipments to the U.S. and Europe
  • API dependence remains a concern, with $5 bn annual imports and 72% sourced from China, exposing supply-chain vulnerabilities
  • The sector’s 10%–12% CAGR contributes 0.5%–1% to GDP growth annually and strengthens forex reserves
  • The U.S. tariff regime, while excluding generics for now, targets branded drugs unless manufactured domestically
  • India supplies 40% of U.S. generics, saving American payers $219 bn in 2022
  • Market volatility followed, with pharma stocks falling and millions wiped off market capitalisation
  • A tariff extension to generics could cut export revenues by 10%–15% and reduce GDP growth by 0.2%–0.3% in FY26
  • Firms with over 30% U.S. exposure face rerouting costs, regulatory barriers, API inflation (5%–7%), and R&D slowdowns
  • These pressures may accelerate “China-plus-one” strategies, shifting focus to Africa and Southeast Asia, raising India’s regulated-market share from 3% to 3.5% by 2030

 

Domestic Cushion through GST Reform

  • GST rationalisation (September 22, 2025) provides domestic support to the sector
  • Drug and medicine GST reduced from 12% to 5%, with 36 essential items at nil rate
  • Consumer savings estimated at $1.2 bn annually
  • Medical device GST cut from 18% to 5%, easing $5 bn worth of imports
  • No re-labelling requirement for pre-September stocks minimises supply disruptions
  • Alignment with Ayushman Bharat is expected to boost consumption by 8%–10%, helping insulate the domestic market from tariff-led shocks

 

On Eastern Scale

  • Global pharma trade increasingly contrasts Western innovation with Eastern manufacturing scale
  • The United States–European Union pact prioritises supply-chain security, with EU medicinal exports to the U.S. including $65.7 billion from Ireland (2024)
  • China demonstrated rising influence in 2025, securing 32% of global biotech deals in Q1 and $2.5 billion in U.S. molecule licensing in H1 2025
  • India’s eastern-facing diplomacy expanded with six MoUs signed with Trinidad and Tobago (July 2025), including pharmaceutical cooperation
  • A Singapore API pact and Serum Institute of India’s dengue treatment collaboration for low- and middle-income countries strengthen India’s South–South partnerships
  • Platforms such as iPHEX could significantly expand exports to Africa, potentially doubling volumes over time
  • With 35% of India’s pharma exports currently U.S.-bound, eastern alliances may offset 20%–25% of tariff-related risks, enhancing strategic resilience

 

Bullish Forecasts

  • India’s pharmaceutical market, valued at $50 billion (2023–24), is projected to scale up to $130 billion by 2030, implying an 11%–12% CAGR
  • Pharma exports are expected to expand sharply to $120–$130 billion, strengthening export-led growth
  • Global pharmaceutical spending could reach $1.5 trillion by 2029, driven by biosimilars and precision medicine
  • India’s API sector is likely to grow to ₹1.82 trillion ($22 billion) by 2030, supported by the Production Linked Incentive Scheme, helping reclaim 20% domestic production
  • Structural challenges such as IP disputes and API dependence remain, but institutional resilience is visible
  • The Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) has strengthened affordable medicine access
  • As of June 2025, 16,912 Jan Aushadhi Kendras were operational across the country
  • The scheme covers 2,110 medicines and 315 surgicals, medical consumables, and devices, widening the public health safety net
  • Tariff pressures threaten drug affordability, with U.S. cancer therapy costs potentially rising by $8,000–$10,000for a 24-week course
  • This mirrors India’s 60% out-of-pocket health expenditure burden, highlighting shared risks
  • Generic medicines, priced around 80% lower, enable nearly 20 million treatments annually
  • However, supply disruptions and quality concerns could delay 15%–20% of surgeries
  • PMBJP’s oncology basket, cutting costs by about 70%, demonstrates that strong domestic buffers can effectively cushion external shocks

 

Conclusion

U.S. tariffs risk triggering drug shortages if India’s 40% share of generic supplies to the American market weakens. To mitigate this, India must leverage strategic MoUs, commit $10 billion to API manufacturing under PLI 2.0, and actively pursue reforms at the World Trade Organization. With global pharmaceutical investment potential of $450 billion for India by 2047, the future lies in east–west hybrid collaboration, innovation-led growth, and equitable access to medicines. To retain pharma supremacy, policymakers must diversify markets decisively, reform systems swiftly, and strengthen domestic capabilities.