From UPSC perspective, the following things are important :
Prelims level : APIs, NLEM
Mains level : Paper 3-Issue of India's dependence on China for APIs.
Whether or not the drug pricing system in India resulted in the growing dependence on China for APIs is analysed in this article.
Incentives for domestic production of APIs
- The department of pharmaceuticals (DoP) has recently notified the Production-Linked Incentive (PLI) scheme.
- The scheme aims to encourage domestic production of 41 active pharmaceutical ingredients (APIs), key starting materials (KSMs) and drug intermediaries (DIs).
- A Drug Security Committee constituted by the DoP had identified 53 APIs with high dependence on China.
Did drug price control policy increase dependence on China?
- India was self-reliant on APIs until the mid-1990s.
- Liberalisation in import restrictions led to a gradual influx of APIs from China.
- India had a more stringent price control policy before the 1990s.
- If price control system were the culprit, India would not have been self-sufficient in APIs until the mid-1990s.
- A cost-based price control system that existed until 2013 regulated the prices of both APIs and formulations.
- The approach to price control shifted from a cost-based to a market-based one since 2013.
- The new price control policy does not regulate the price of APIs.
- New price control policy regulates the prices of formulations of those APIs, which figure in the National List of Essential Medicines (NLEM).
- There are many APIs which do not fall under DPCO but are still imported in a significant way from China.
Understanding the growing dependence on China from the past perspective
- Even though India now has a less stringent drug price control policy, the dependence on Chinese imports has been growing.
- The share of China in India’s total import of APIs has increased from 61% in 2011 to 69% in 2019.
- The experience in India was that firms would tend to rely on imported APIs if they have an option.
- The Hathi Committee (1975), which had looked into why Indian firms were not engaging in the production of APIs, found that the capital invested to turnover ratio of APIs was much lower as compared to formulations.
- This ratio was 1:1 for APIs at best and 1:2.6 for formulations on average, and in some cases, as high as 1:7.2.
- Subsequently, various measures were adopted.
- The ‘ratio parameter’ mandatorily required the producers of formulations to produce a certain quantity of APIs.
- It was the government interventions to overcome the market failure that resulted in India attaining self-sufficiency in APIs.
Consider the question “What are the APIs? Examine the implications of India’s dependence on imports for API and suggest the measures to reduce such dependence.”
An enquiry into the causes of dependence on China needs to go much beyond price control policy and look into whether the state continued to play a proactive role during the post-1991 period to maintain an ecosystem to enhance the competence of Indian API industry.