U.S. tariffs on pharmaceuticals could significantly impact India, given that 40% of its pharmaceutical exports are directed towards the United States, according to SBI Research.
The pharmaceutical industry in India plays a significant role in the global market, particularly in supplying generic drugs to the United States. According to a report by SBI Research, around 40% of India's total pharmaceutical exports were directed to the US in FY25, with many large Indian pharma companies deriving between 40-50% of their total revenue from the American market.
The report also predicts that if a 50% tariff is imposed on Indian pharma exports, the earnings of these companies may decline by 5 to 10% in FY26. This potential tariff could have a significant impact on the US market, as India supplies nearly 35% of the US's generic pharmaceutical requirements.
Currently, the US has not imposed any additional tariffs on Indian pharmaceutical exports, but there have been threats of imposing pharma-specific tariffs globally in the future. Pharma products were exempted from the recent 50% tariffs on Indian imports to the US, but former US President Trump stated that these tariffs could escalate up to 150-250%.
If such a tariff were to be implemented, the impact on market competitiveness would likely be significant. Indian pharma companies, which dominate the US generic drug market to some extent, could lose market share if their products become more expensive due to tariffs. The increased cost of Indian generics in the US market could potentially reduce their price advantage relative to competitors from other countries.
In the US, generic drugs account for 90% of prescriptions dispensed, but only 26% of total drug spending. With India's 35% share in generic drug supplies, any tariff is likely to have a significant impact on US citizens by increasing medicine costs.
The transition for the US to shift API production to other countries or domestic facilities would take a minimum of three to five years. During this period, the higher costs associated with the tariff could put pressure on profit margins for Indian pharma companies, as they may be unable to pass on higher costs to consumers.
In conclusion, while no immediate tariff impact exists yet, the threat of a 50% tariff on pharma exports to the US poses a material risk to Indian pharma firms’ earnings and their competitive position in the critical US market. The potential earnings impact is estimated to be 5-10% reduction in FY26 pharma company earnings, and the long-term risk remains as threats of steep pharma tariffs globally remain.
- The financial implications for Indian pharma companies could be substantial if a 50% tariff is imposed on their exports, potentially leading to a decrease in their earnings by 5 to 10% in FY26.
- The US market, which relies on India for nearly 35% of its generic pharmaceutical requirements, could face increased medicine costs if a tariff is implemented, affecting the health of millions of US citizens.
- If a tariff escalates up to 150-250%, as suggested by former US President Trump, Indian pharma companies could lose market share in the US due to increased costs, potentially impacting their business competitiveness in the long run.
