Will Trump upset India’s apple cart?

Would President Donald Trump’s obsession against outsourcing if translated into action debilitate the pharmaceutical sector in India and specifically the industry in Hyderabad which is considered as the bulk drug capital of India? In addition to IT, drug production is also high on the agenda of Donald Trump which could mean drastic reduction in imports from India.

What works in favour of India

• US accounts for around 37% of India’s total pharma exports
• Cost of manufacturing a drug in US is double that in India
• India has for long been a reliable source for US companies
• Anti-pollution norms for setting up drug units very lax in India

The United States accounts for around 37 per cent of India’s total pharmaceutical exports with most of the generics sourced from the country carving an indelible niche of their own in the American markets. Exports to the United States during 2015-16 were valued at around Rs 39,000 crore out of a total of around Rs 98,000 crore. Moreover, India has had a steady run in the United States over the last three years which is reflected in the reasonably healthy Compound Annual Growth Rate (CAGR) of nearly 10 per cent,

Hyderabad occupies a prominent position in bulk drug production and exports. The industry here accounts for 40 per cent of the total bulk drug production in India and also considerable volumes of intermediates. Around 50 per cent of the bulk drugs and intermediates manufactured in Hyderabad are exported to various countries with the maximum being procured by the United States.

Now the question making the rounds is whether this hunky dory picture would change with Donald Trump coming on the scene. The possibility of the threat materialising is remote considering the fact that implementing Trump’s agenda could prove to be a herculean task. From the United States perspective, there are innumerable factors pointing to the impracticability of putting an end to import of pharmaceutical products. Most important of them, is the cost and facility factor.

The cost of manufacturing a drug in India is half of what it would amount to in the United States. Moreover, outsourcing companies in the United States have already established a strong linkage with the Indian manufacturers. Consolidation of partnerships between the companies of the both the countries has developed over the years with United States sharing its know-how in processing technologies, accompanied by assiduous monitoring of the Indian facilities by the United States Food and Drug Administration (USFDA).

All these endeavours clearly point to the intention and objective of the United States to make India a long-term, if not permanent, source for procurement of pharmaceutical products. The companies in both the countries have so far been enjoying a smooth ride in their business transactions. Will the American companies be prepared to move out of this comfort zone and start ventures on their own soil at the cost of halving their profit margins? The repercussions of Donald Trump’s agenda to stop outsourcing would many times outweigh the advantages and the implications of such actions are too conspicuous even before it is implemented.

Another rather dubious clinching factor in favour of India is the inevitable protests by Americans against the setting up high polluting pharmaceutical industries on their terrain. This was, in fact, one the reasons for companies in the United States promoting and procuring drugs from India, where the laws related to environment is notoriously lax. President Donald Trump’s avowed agenda as far is in all probability going to be non-starter with industry and environmental lobbies preventing him from upsetting the apple cart.

By Satyapal Menon​