India’s Pharma at a Crossroads: How U.S. Tariffs Could Reshape the ‘Pharmacy of the World’

India’s pharmaceutical sector, long celebrated as the “pharmacy of the world”, is facing a defining stress test. In September 2025, U.S. President “Donald Trump” announced a 100% tariff on branded and patented pharmaceutical imports, effective October 1, aimed at boosting domestic manufacturing. While generics have been spared for now, the move has injected uncertainty into global supply chains — and into an Indian industry that supplies nearly 40% of U.S. generic medicines and anchors India’s export-led growth.

What exactly has the U.S. announced?

The tariff targets branded and patented pharmaceutical imports unless they are manufactured domestically in the U.S. The stated objective is to revive local manufacturing and reduce dependence on foreign suppliers. However, for India — whose pharma exports to the U.S. touched nearly $9 billion in FY25 — the announcement has raised fears of spillover effects, particularly if the tariff regime expands to generics in a future escalation.

Markets reacted immediately. Shares of major Indian pharmaceutical companies fell sharply, wiping out significant market capitalisation, reflecting investor anxiety over U.S. exposure, regulatory uncertainty, and rising compliance costs.

Why the U.S. market matters so much to India

India is the world’s third-largest pharmaceutical exporter by volume, shipping over $30 billion worth of medicines in FY25. Generics form the backbone of this success, accounting for around 70% of exports to regulated markets such as the U.S. and Europe. In the U.S. alone, Indian firms supply roughly 40% of generic drugs, saving American patients and insurers an estimated $219 billion in 2022.

For India’s $50-billion pharma sector — contributing about 1.72% to GDP — the U.S. is not just another market. Around 35% of exports are U.S.-bound, making tariff shocks particularly consequential.

The global pharmaceutical landscape India operates in

Globally, pharmaceutical exports crossed $850 billion in 2024, driven by ageing populations, chronic diseases, and post-pandemic innovation. Germany, Switzerland and the U.S. dominate exports by value, while the U.S. remains the world’s largest importer.

India’s competitive edge lies in scale and cost efficiency rather than high-value patented drugs. However, a structural vulnerability persists: annual imports of about $5 billion worth of active pharmaceutical ingredients (APIs), 72% of them sourced from China. This dependence exposes India to supply disruptions and cost inflation, especially during geopolitical or trade shocks.

How damaging could tariffs become if they widen?

For now, generics remain exempt — a crucial relief. But industry estimates suggest that if tariffs were extended to generics, India’s pharma export revenues could fall by 10–15%, shaving 0.2–0.3 percentage points off GDP growth in FY26.

Companies with more than 30% exposure to the U.S. would face higher rerouting costs, regulatory delays, API price inflation (already up 5–7%), and pressure on research and development spending. There are also downstream risks: disruptions in generic supplies could delay surgeries and raise treatment costs in the U.S., undermining the very affordability that Indian generics enable.

Domestic policy buffers: GST reform and affordability

India has moved to cushion domestic demand through Goods and Services Tax (GST) rationalisation effective September 22, 2025. Tax rates on drugs and medicines were reduced from 12% to 5%, with 36 essential medicines brought under a nil rate. Medical devices saw rates fall from 18% to 5%.

These changes are expected to save consumers around $1.2 billion annually and boost domestic consumption by 8–10%, aligning with the Ayushman Bharat ecosystem. Crucially, the decision to avoid re-labelling requirements for existing stocks has minimised supply disruptions.

Looking east and south: diversification beyond the U.S.

As global trade increasingly pits western innovation against eastern scale, India is recalibrating its external strategy. Diplomatic efforts have yielded new pharmaceutical cooperation agreements — including MoUs with Trinidad and Tobago, API partnerships with Singapore, and vaccine and treatment collaborations led by the “Serum Institute of India”.

Africa and Southeast Asia are emerging as key alternative markets. Industry projections suggest that a successful “China-plus-one” and “West-plus-East” strategy could raise India’s share in regulated markets from 3% to 3.5% by 2030, offsetting up to a quarter of potential U.S. tariff risks.

Resilience at home: APIs, PLI and Jan Aushadhi

The long-term solution lies in reducing API dependence and strengthening domestic manufacturing. Production-Linked Incentive (PLI) schemes are expected to help India reclaim up to 20% of domestic API production by 2030, with the API market projected to reach ₹1.82 trillion.

Equally significant is the “Pradhan Mantri Bhartiya Janaushadhi Pariyojana”. By June 2025, nearly 17,000 Jan Aushadhi Kendras were operational, offering over 2,100 medicines and hundreds of surgical and medical consumables at prices up to 70% lower than branded equivalents. The scheme underscores how domestic buffers can protect affordability even amid global trade shocks.

What lies ahead for India’s pharma ambition

Forecasts remain bullish. India’s pharmaceutical market aims to reach $130 billion by 2030, while global pharma spending could touch $1.5 trillion by 2029, driven by biosimilars and precision medicine. By 2047, India is projected to account for a $450-billion share of the global pharma ecosystem.

Yet challenges persist — from intellectual property disputes to supply chain vulnerabilities. The U.S. tariff shock has exposed these fault lines, but it has also reinforced India’s strategic value to global healthcare. The path forward will demand diversified markets, accelerated API self-reliance, deeper global partnerships, and sustained regulatory reform.

In a world of shifting trade barriers, India’s pharma supremacy will depend not just on scale, but on agility — and on its ability to balance affordability, innovation, and strategic autonomy.