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API Prices Tumble: Indian Pharma Gets Margin Relief as China Overproduces and India Pushes for Self-Reliance

A sharp decline in API prices, driven by Chinese oversupply and India’s ramped-up local production, is easing cost pressures and boosting global competitiveness for Indian pharmaceutical companies.

• By Pooja Chaturvedi Sah
• New Delhi
• Jun 09, 2025

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India’s pharmaceutical industry is witnessing a timely respite as the prices of Active Pharmaceutical Ingredients (APIs) — the essential raw materials used in drug manufacturing — have fallen significantly in recent months. The drop, driven by global overcapacity and aggressive pricing by Chinese suppliers, comes as a much-needed relief after years of inflated input costs during and after the COVID-19 pandemic.

Take the example of paracetamol API — a critical component in common fever medications — whose price has plunged from ₹900 per kg during the pandemic to nearly ₹250 per kg now. Similarly, meropenem API, an antibiotic used in severe infections, has seen its cost drop from ₹75,000 to ₹45,000 per kg.

Industry insiders attribute this steep decline to two primary drivers: overproduction in China and India’s simultaneous increase in domestic manufacturing, supported by the government’s Production Linked Incentive (PLI) scheme. “What we’re seeing is a classic case of supply outpacing demand. The Chinese are pushing out material to maintain market share, while India’s local output is also gaining ground,” said Mehul Shah, a pharmaceutical supply chain expert who closely monitors Chinese API trends.

API Imports Still Dominated by China — But Shift is Underway

While over 70% of India’s API imports still come from China, especially for fermentation-based drugs like ciprofloxacin and norfloxacin, the recent price dip has temporarily made imports even more attractive to Indian formulators. APIs can constitute up to 60% of total formulation costs, so even a 30–40% drop in bulk drug prices directly improves profitability, especially for companies manufacturing generics for export.

This import bonanza, however, doesn’t change the long-term strategy: reduce India’s dependency on China for critical pharmaceutical raw materials. “While low prices from China are welcome in the short term, India cannot afford to ignore the strategic risk of over-reliance on a single source. That lesson was loud and clear during the pandemic,” said a senior executive from Pharmexcil.

PLI Scheme Gains Momentum, 35 APIs Now Locally Manufactured

To address this vulnerability, the Indian government has ramped up efforts to localize API manufacturing under the PLI scheme, with an outlay of ₹6,940 crore. As of early 2025, 48 API projects have been sanctioned, 34 commissioned, and 35 APIs — many of which were previously entirely imported — are now being manufactured in India.

The PLI scheme offers 10–20% financial incentives on incremental sales of 41 identified critical APIs, with the goal of reducing Chinese imports by at least 35% over the next five years. Domestic giants like Aurobindo Pharma, Granules India, Laurus Labs, and Torrent Pharma have already begun producing key APIs like Penicillin-G, Metformin, and Atorvastatin at new or expanded facilities.

Additionally, greenfield bulk drug parks have been approved in Andhra Pradesh, Himachal Pradesh, and Gujarat with a budget of ₹3,000 crore, aimed at creating world-class infrastructure to support API clusters.

Margin Upside and Export Advantage

Brokerage firms now forecast margin improvements of 150–250 basis points for Indian pharma companies, especially those with strong export footprints like Sun Pharma, Lupin, Cipla, and Dr. Reddy’s. Lower raw material costs also mean better pricing power in global tenders, particularly in the ultra-competitive U.S. generics market where prices have eroded by over 10% annually in the last five years.

Moreover, with shipping costs easing and the rupee remaining relatively stable, the Indian pharmaceutical exporters are better positioned to price competitively in key overseas markets. 

Domestic Market Benefits Too

Domestically, consumers may also benefit from this shift. With falling API prices and stabilised input costs, Indian drugmakers can afford to maintain or even reduce medicine prices, particularly in the OTC and branded generics segments. Though essential medicines are price-regulated by the National Pharmaceutical Pricing Authority (NPPA), manufacturers expect to regain healthy margins even under the cap.

“This is a win-win — affordable medicines for patients and sustainable margins for pharma firms,” said a spokesperson from the Indian Drug Manufacturers’ Association (IDMA).

India’s Long-Term API Strategy: From Lagging to Leading

India's pharmaceutical prowess is globally acknowledged, with the country supplying 20% of the world’s generics and 57% of WHO-prequalified APIs. Yet, for decades, the backbone of its formulations industry—APIs—has remained heavily dependent on China. The API import bill stood at ₹377 billion in FY 2023-24, of which ~70% came from China.

This dependence didn’t always exist. In the 1990s, India was a global leader in API production, but rising costs, stricter environmental norms, and lack of incentives drove the industry into decline. In contrast, China surged ahead with subsidised power, land, and large-scale infrastructure.

The COVID-19 pandemic served as a wake-up call. In 2020, the Indian government announced the “Year of API” and launched three major schemes:

PLI Scheme for APIs: ₹6,940 crore for 41 critical APIs

PLI for Pharmaceuticals: ₹15,000 crore for three categories of pharma products including APIs/KSMs

Bulk Drug Parks Scheme: ₹3,000 crore for common infrastructure in three states

In parallel, the Council of Scientific and Industrial Research (CSIR) has developed 25 cost-effective, indigenous technologies for API synthesis, awaiting tech transfer. Several API clusters have been activated, and 27 greenfield projects were opened in March 2025, generating over ₹800 crore in sales.

Challenges Remain

Despite these gains, India’s API industry still faces structural challenges. Over 80–90% of Key Starting Materials (KSMs) for APIs are still sourced from China. The average facility size in India remains smaller compared to China, leading to higher per-unit production costs.

India’s API market is expected to grow at a CAGR of 7–8% through 2029, supported by demand for chronic disease drugs, contract manufacturing, and global supply chain diversification. However, tighter drug price controls, complex environmental clearances, and limited fermentation capacity continue to act as bottlenecks.

“India needs to replicate China’s scale economics and cluster model while ensuring compliance with global regulatory standards,” said R.K. Agarwal, President, Bulk Drugs Manufacturers Association.

Conclusion: A Turning Point for India’s Pharma Backbone

The steep fall in API prices has provided Indian pharmaceutical companies with a much-needed cushion and a chance to rebuild their strategic base. Government schemes are beginning to yield tangible results, but long-term sustainability will depend on continued investment, innovation, and policy support.

As India aims to reclaim its position as a global API powerhouse, this moment may mark a shift from reactive importing to proactive manufacturing — a shift that will define the next phase of India’s pharmaceutical growth story.