India’s pharmaceutical sector, long celebrated as the “pharmacy of the world”, faces a defining moment after the United States announced a steep 100% tariff on branded and patented drug imports effective October 1, 2025. While generics have been spared for now, the move has injected uncertainty into a sector that underpins India’s export growth, public health diplomacy, and affordable medicine access worldwide.
What the U.S. tariff announcement means
The decision announced by Donald Trump is aimed at reshoring pharmaceutical manufacturing to the U.S. By targeting branded and patented drugs unless produced domestically, the policy directly affects India’s higher-value pharma exports, even as it leaves the generic segment temporarily untouched.
For India, the stakes are high. Pharma exports to the U.S. touched nearly $9 billion in FY25, registering a robust 14.29% year-on-year growth. The sector as a whole is valued at about $50 billion and contributes close to 1.72% of India’s GDP.
India’s place in the global pharmaceutical economy
The global pharmaceutical trade, valued at over $850 billion in 2024, is driven by ageing populations, chronic diseases, and post-pandemic innovation. While Germany, Switzerland, and the U.S. dominate by value, India stands out as the third-largest exporter by volume.
India exported $30.47 billion worth of pharmaceuticals in FY25, with generics accounting for nearly 70% of supplies to the U.S. and Europe. Crucially, India supplies about 40% of all generic medicines used in the U.S., generating estimated savings of $219 billion for American healthcare payers in 2022 alone.
The generics buffer — and its limits
Generics offer India a temporary shield. Since the U.S. tariff excludes them for now, the immediate impact is muted. However, market reactions have been swift, with pharma stocks declining on fears of future escalation.
If tariffs are extended to generics, export revenues could fall by 10–15%, shaving 0.2–0.3% off India’s GDP growth in FY26. Firms with heavy U.S. exposure face rising compliance costs, regulatory delays, and active pharmaceutical ingredient (API) inflation of 5–7%, potentially slowing research and development.
Structural vulnerability: API dependence
A key weakness lies in India’s dependence on imported APIs. Around $5 billion worth of APIs are imported annually, with China accounting for nearly 72%. This creates supply chain risks, especially during geopolitical or trade disruptions.
Although the sector’s 10–12% compound annual growth rate adds up to 1% to GDP growth each year, sustained resilience will depend on reversing this import dependence through domestic manufacturing.
Domestic policy cushioning: GST and welfare linkages
India’s Goods and Services Tax rationalisation, effective September 22, 2025, offers an internal stabiliser. Tax rates on medicines have been reduced from 12% to 5%, with 36 essential drugs exempted entirely. Medical devices now attract a 5% GST instead of 18%.
Aligned with Ayushman Bharat, these measures are expected to boost domestic consumption by 8–10% and save consumers an estimated $1.2 billion annually, partially offsetting export-side volatility.
Eastward diversification and health diplomacy
As global trade increasingly reflects an east–west divide, India is seeking new partnerships. Recent memoranda of understanding with Trinidad and Tobago, a Singapore API pact, and vaccine collaborations led by the Serum Institute of India signal this shift.
Platforms such as iPHEX are also opening African and Southeast Asian markets, which could offset 20–25% of potential tariff-related risks given that 35% of India’s pharma exports are currently U.S.-bound.
Long-term outlook and reform priorities
Despite near-term headwinds, forecasts remain bullish. India aims to scale its pharma market to $130 billion by 2030, while the API sector could reach ₹1.82 trillion with support from production-linked incentive (PLI) schemes. Domestic access initiatives like the Pradhan Mantri Bhartiya Janaushadhi Pariyojana — with over 16,900 Jan Aushadhi Kendras — demonstrate how affordability and scale can coexist.
However, challenges persist: intellectual property disputes, quality perception, and API dependence. Navigating U.S. tariffs will require diversified trade ties, deeper domestic manufacturing, and proactive engagement at the World Trade Organization.
What to note for Prelims?
- India supplies about 40% of generic medicines used in the U.S.
- Pharma exports crossed $30 billion in FY25.
- API imports are heavily dependent on China.
- GST on medicines reduced to 5% in 2025.
What to note for Mains?
- Impact of protectionist trade policies on global health supply chains.
- Strategic importance of generics in India–U.S. economic ties.
- Need for API self-reliance and export diversification.
- Balancing trade growth with affordable access to medicines.
