India’s Pharmaceutical Sector Grapples with Rising Costs and Supply Chain Disruptions

India’s pharmaceutical industry is navigating one of its most severe supply chain disruptions in recent years. Escalating conflict in West Asia and Iran has triggered sharp increases in the cost of active pharmaceutical ingredients (APIs), key starting materials (KSMs), solvents, and logistics—exposing long‑standing vulnerabilities in India’s pharmaceutical ingredients ecosystem.

Raw material prices for widely used inputs such as glycerin and paracetamol have surged by as much as 60 percent, while the prices of key solvents including butyl ethanol and isopropyl alcohol have risen anywhere between 30 and 100 percent within a single month. For an industry built on scale, efficiency, and price competitiveness, this sudden spike has become a serious operational and policy challenge.

A Crisis Driven by Multiple Shocks

The current disruption is not the result of a single factor, but a convergence of geopolitical, logistical, and structural pressures. Regional conflict in West Asia has driven up energy prices and restricted vessel movement, sharply increasing freight costs and straining global shipping capacity. Reports suggest that tens of thousands of shipping containers remain stranded worldwide, disrupting just‑in‑time sourcing models at both ends of the pharmaceutical value chain.

For India, which imports a significant share of its APIs and KSMs—primarily from China—these disruptions have been particularly painful. The Iran conflict and broader instability in the Middle East have tightened container availability and delayed shipments, forcing some manufacturers to consider cutting production or temporarily shutting plants.

At the same time, pharmaceutical companies are facing regulatory and pricing pressures at home. Fixed‑price supply contracts, coupled with price controls on essential medicines, have left little room to pass on increased input costs, intensifying margin stress across the sector.

Sharp Rise in Raw Material Costs

The scale and speed of the cost escalation have shocked the industry. One of the most striking examples is paracetamol, among India’s most widely consumed medicines. In just two weeks, the price of its key raw material jumped from ₹250 per kg to ₹450 per kg. Similar spikes have been reported across APIs, excipients, fermentation inputs, and packaging materials.

If the upward trend continues, many pharmaceutical manufacturers—particularly small and mid‑sized players—may find it difficult to sustain production at current price levels. Over time, this could translate into higher drug prices or intermittent shortages, affecting patients who rely on affordable generic medicines.

MSME Pharma Sector Under Severe Pressure

Nowhere is the pressure more acute than in the Micro, Small, and Medium Enterprises (MSME) pharmaceutical segment, which forms the backbone of India’s generic drug manufacturing ecosystem. According to the Himachal Drug Manufacturers Association, unprecedented price hikes—ranging from 200 to 300 percent in some APIs, solvents, excipients, and packaging materials—are threatening the survival of MSME manufacturers.

MSMEs supply large volumes of medicines to government health schemes, hospital procurement programs, and the retail market. Any prolonged disruption in their operations could significantly impact medicine availability across the country.

Risks to Essential Medicine Supply

The stakes extend well beyond industry balance sheets. Millions of Indians depend on low‑cost generic medicines for chronic conditions such as diabetes, hypertension, cardiovascular disease, and respiratory disorders. A slowdown in production or closure of MSME manufacturing units could lead to shortages of essential medicines or higher out‑of‑pocket costs, placing additional strain on India’s healthcare system.

This risk has sharpened calls for policy support, with industry bodies urging the government to intervene through logistics facilitation, temporary duty reductions on critical imports, and relief measures to stabilize input costs.

Structural Weaknesses Laid Bare

The crisis has once again highlighted India’s heavy dependence on China for pharmaceutical ingredients. Despite years of policy focus on self‑reliance, India continues to import 60–70 percent of its APIs and KSMs, with dependence rising to as much as 90 percent for certain antibiotics.

While low‑cost Chinese imports have historically supported India’s dominance in finished generic formulations, the current disruption has underscored a critical reality: India’s global leadership in finished medicines rests on a fragile upstream supply base.

Beyond the Crisis: A Strategic Inflection Point

While painful in the short term, the disruption is accelerating strategic shifts already under way within the industry. Companies are stepping up investments in domestic API and KSM manufacturing, diversifying sourcing, and reducing reliance on single geographies. Production‑linked incentive (PLI) schemes and bulk drug parks have already supported the domestic manufacture of more than two dozen critical APIs and intermediates, helping avoid imports worth over ₹1,300 crore (approximately $145 million).

At the same time, the industry is moving away from volume‑driven commodity APIs toward higher‑value, complex molecules such as oncology APIs, peptides, biologics, and biosimilars. Automation, greener manufacturing processes, and operational efficiency are becoming central to long‑term competitiveness, particularly in an environment of volatile energy and logistics costs.

For global buyers, supply security and regulatory reliability are gaining importance relative to lowest price—positioning India as a “China‑plus‑one” source for pharmaceutical ingredients, especially for manufacturers with scale and compliance capabilities.

The Bottom Line

In the short term, price volatility, logistics uncertainty, and margin pressure are likely to persist through 2026, with MSME manufacturers facing the greatest risk. Over the medium to long term, however, the crisis is pushing the Indian pharmaceutical ingredients sector toward a more resilient, specialized, and strategically grounded future.

The challenge for policymakers will be to ensure continuity—beyond incentives—so that temporary shocks do not derail the country’s long‑term ambition of building a self‑reliant and sustainable pharmaceutical supply chain.

In the coming months: ARC will host four webinars on the pharmaceutical sector – discussing the challenges, opportunities, and what lies ahead. 

ARC’s India Forum on July 9-10 will feature eminent speakers and end users from the pharmaceutical sector, providing a networking platform to share best practices. 

ARC Advisory Group India is planning to host a Pharma Summit in Hyderabad later this year. We request participation from industry leaders and end users.