India’s pharmaceutical industry is once again grappling with geopolitical turbulence. The threat of steep US tariffs, revived under President Donald Trump’s reciprocal trade agenda, has unsettled boardrooms across a sector that depends disproportionately on the American market. A proposed 25% tariff on pharmaceutical imports places India’s largest exporters in a difficult position. Even though early White House documents appear to spare medicines from the harshest categories, uncertainty itself is disruptive.
For many Indian drugmakers, the US contributes between 30% and 50% of total revenue. A tariff shock, even a modest one, could squeeze margins in a business already operating at thin spreads. The larger question is whether this is merely another trade irritant or a moment that forces the sector to confront more fundamental vulnerabilities.
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Pharmaceutical industry’s structural weaknesses
Indian pharmaceutical industry cannot fully absorb tariff increases. US buyers, operating in a price-sensitive healthcare environment, will resist higher costs, leaving the burden to be shared by importers, insurers, or patients. Smaller companies, especially SMEs that account for nearly one-third of industry revenues, face the most pressure. These firms rely heavily on contract manufacturing and lack the buffers to withstand prolonged trade friction.
SME performance has remained steady in recent years. The segment grew 7–9% in FY24, supported by export demand from Ahmedabad, Mumbai, and Baddi, while domestic strength lifted hubs such as Indore and Chennai. Formulations and bulk drug exports formed 46% of their output, with chronic therapies like cardiac and neuro, and acute segments including dermatology and gastrointestinal drugs, driving growth. FY26 has begun strongly with price adjustments and new launches.
But the real vulnerability lies elsewhere: India’s dependence on imported active pharmaceutical ingredients (APIs), especially from China. A tariff shock in the US market, layered on top of API price volatility or supply disruptions, could compress margins far more than headline tariff numbers suggest. It also highlights the unfinished business of building domestic API capacity, an issue the pandemic amplified but did not resolve.
Why US tariffs could backfire
The United States has strong incentives to avoid triggering disruptions in its drug supply. Indian companies supply more than 40% of America’s generic drug consumption, according to the USFDA. More than 700 Indian manufacturing facilities serve the US market, a scale unmatched by any other country. Affordable generics from India have saved the US healthcare system hundreds of billions of dollars, as shown in reports by the Association for Accessible Medicines.
These savings have political weight. US drug prices remain a contentious issue in Congress, and Medicare negotiations are under scrutiny. A tariff that pushes up prices or causes shortages risks voter backlash. Even national-security arguments for “reshoring” drug production run into the reality that the US lacks the capacity to replace Indian suppliers quickly. Tariffs may therefore be used as leverage or signalling, but a broad implementation remains unlikely.
A shift towards complex generics and biosimilars
Much of Indian pharmaceutical industry’s export dependence stems from its dominance in plain-vanilla generics — cheap, high-volume, low-margin products. But these are also the segments with least pricing power under tariff stress. Firms investing in complex generics, biosimilars, and injectables have stronger defences. These products require higher technological capabilities and face fewer competitors, giving companies more scope to negotiate prices or withstand external shocks.
This transition is underway. Larger firms are building pipelines of inhalation therapies, long-acting injectables, and biosimilars for global markets. This is a slow but important shift from volume-led growth to value-led positioning. For SMEs, the challenge is greater: investments in complex generics demand capital and sophisticated quality systems that only some clusters are equipped to provide.
PLI, bulk drug parks, and diplomacy
The government’s role is largely absent from public debate on tariff risks, but policy actions will shape outcomes. The Production-Linked Incentive (PLI) schemes for pharmaceuticals and bulk drugs, and the establishment of three bulk drug parks, aim to reduce API dependence and encourage higher-value manufacturing. Progress has been uneven, but tariff uncertainty makes these initiatives more urgent.
Trade diplomacy will also matter. Given the US reliance on Indian generics, New Delhi has leverage, but it must use it cautiously. Sector-specific engagement, supported by data on US healthcare savings, can help moderate tariff impulses. Domestic regulators, including the NPPA and CDSCO, will need to coordinate with industry to manage price caps, compliance costs, and quality standards without weakening competitiveness.
Compliance, quality, and reputation risks
Tariffs are only one part of the external pressure. India’s reputation has been dented by occasional quality lapses and USFDA warning letters, which raise scrutiny and push up compliance costs. Non-tariff barriers such as data integrity audits can be as damaging as tariffs to market access. The revised Schedule M norms, which mandate upgraded manufacturing standards by December 2025, represent a necessary but expensive transition.
Firms that invest in strong compliance systems will emerge stronger. Those unable to keep pace may exit or consolidate, creating opportunities for better-capitalised players. This dynamic mirrors the broader restructuring seen in other regulated sectors.
Health systems and employment
The pharmaceutical industry’s domestic implications deserve greater attention. Pressure on exporters could limit investment in R&D and high-quality manufacturing for the Indian market. Employment effects could also be significant. Pharma clusters—from Hyderabad to Baddi to Indore—employ large skilled workforces whose wage growth and training prospects depend on steady export revenues.
Shortages stemming from plant closures or compliance failures could raise domestic treatment costs, especially in chronic therapy markets where dependence on local formulations is high. Policymakers will have to balance quality enforcement with the need to ensure supply continuity.
Diversification is the way to go
The tariff debate has accelerated a strategic rebalancing. Companies are expanding into semi-regulated and emerging markets in Latin America, Africa, and Southeast Asia. Domestic demand, driven by India’s rising chronic disease burden, is becoming a more important pillar of growth. Innovation clusters in Ahmedabad, Baddi, Indore, and Chennai are driving new product development.
India’s competitive strengths—scale, low costs, and proven compliance capabilities—remain intact. The US, too, has an interest in maintaining access to affordable Indian generics. These shared dependencies moderate extreme outcomes.
But resilience will not come from tariff negotiations alone. It will come from re-engineering the business model: reducing API dependence, moving into complex generics and biosimilars, strengthening compliance, and expanding geographically. India’s response need not be retaliatory. Its strength lies in deep integration into global supply chains.
If the pharmaceutical industry uses this moment to shift from commodity generics to a more diversified, innovation-led model, Indian pharma could emerge not only as the world’s largest generic supplier but as a future-ready healthcare powerhouse.