India’s active pharmaceutical ingredients (API) industry has entered a critical phase. Rising compliance costs under revised Schedule M norms, sustained pricing pressure from Chinese imports, and structural tax challenges have significantly squeezed margins for domestic bulk drug manufacturers. As Union Budget 2026 approaches, industry stakeholders are urging the government to announce a calibrated mix of protective trade measures, fiscal incentives, and financing support to restore competitiveness and strengthen India’s pharmaceutical supply chain.
Mounting Cost Pressures on Domestic API Manufacturers
The revised Schedule M norms, aligned more closely with global Good Manufacturing Practice (GMP) standards, are a positive step for quality assurance. However, for many API manufacturers—particularly micro, small, and medium enterprises (MSMEs)—compliance has translated into substantial capital expenditure. Facility upgrades, advanced quality systems, and environmental compliance have increased operational costs at a time when selling prices remain under pressure.
Industry leaders argue that without targeted financial support, several MSME units risk becoming unviable. Capital subsidies, interest subvention, and long-tenure soft loans are being highlighted as essential interventions to ensure that quality upgrades do not result in supply disruptions or capacity erosion.
Dependence on Chinese Imports Remains a Strategic Risk
Despite being the world’s third-largest producer of medicines by volume, India continues to rely heavily on China for APIs and key starting materials (KSMs). Estimates suggest that close to 70 per cent of India’s raw material requirements are imported, leaving the domestic pharma ecosystem exposed to geopolitical shocks and supply chain disruptions.
While government initiatives such as the Production Linked Incentive (PLI) scheme and selective import restrictions have started yielding results—reflected in a decline in API imports during 2025—industry experts believe the measures need to be expanded. Minimum Import Price (MIP) mechanisms, broader anti-dumping investigations, and temporary safeguards for critical molecules are being proposed to counter predatory pricing and protect domestic manufacturing capacity.
Extending PLI and Strengthening Trade Defences
The PLI scheme for bulk drugs has been widely acknowledged as a step in the right direction. However, API makers are calling for an extension and expansion of the scheme to cover a wider range of molecules and longer incentive tenures. Given the long gestation period for API projects, policy continuity is seen as crucial to attract sustained investment.
In parallel, manufacturers are seeking proactive trade defence measures. Several players have approached the Directorate General of Foreign Trade (DGFT) to extend import restrictions to additional molecules and initiate fresh anti-dumping probes. These measures, industry bodies argue, are necessary to prevent further shutdowns and to rebuild a resilient domestic API base.
Regulatory Clarity and GST Rationalisation
Beyond trade and incentive-related issues, regulatory fragmentation remains a key concern. While India boasts over 650 US FDA-approved manufacturing facilities, evolving compliance requirements and overlapping approvals add to operational uncertainty. Streamlining regulatory processes and providing clearer transition timelines for new norms could significantly reduce compliance-related risks.
Taxation is another area demanding attention in Budget 2026. The inverted duty structure under the dual GST slabs of 5 per cent and 18 per cent has strained working capital for API manufacturers. Higher taxes on inputs compared to finished products erode margins and delay cash flows. Industry stakeholders are urging the government to rationalise GST rates, expedite refunds, and provide clarity on input tax credit eligibility.
Strategic Importance of Reviving Domestic API Capacity
Over the past two decades, India’s pharmaceutical industry has successfully moved up the value chain into formulations, while China has consolidated dominance in APIs through extensive state support and economies of scale. This imbalance has forced many Indian API producers to exit the market, mirroring trends seen earlier in Europe, where traditional players withdrew due to low margins and environmental costs.
Rebuilding domestic API capacity is not just an industrial objective but a strategic imperative. A strong API base underpins India’s formulations leadership, supports export growth, and reduces vulnerability to global supply disruptions. Initiatives such as encouraging a monopoly medicine company in india model for select critical molecules and promoting partnerships with a pharma contract manufacturing company can further strengthen self-reliance.
Expectations from Union Budget 2026
As global trade dynamics become increasingly volatile, Budget 2026 is seen as a decisive moment for India’s API sector. A balanced policy approach—combining import curbs, extended PLI incentives, GMP upgrade subsidies, concessional financing, and tax rationalisation—could help domestic manufacturers withstand global competition and invest confidently in quality and scale.
If addressed holistically, these measures can not only stabilise the API segment but also reinforce India’s position as a reliable global pharmaceutical hub, capable of delivering quality medicines at scale while maintaining supply chain security.