Why US spared Indian pharmaceuticals from 50% tariff bracket
What's the story
The United States has spared the Indian pharmaceutical industry from immediate tariff hikes, owing to the critical role of generic drugs in ensuring affordable healthcare. The decision comes after President Donald Trump imposed a 25% extra tariff on India over Russian oil purchases, taking the total tariff to 50%. Sudarshan Jain, Secretary General of the Indian Pharmaceutical Alliance, confirmed this development.
Healthcare reliance
Generic drugs crucial for US healthcare
Jain stressed that generic medications are "crucial" for maintaining affordable healthcare in the US. The sector is currently under review as part of a Section 232 investigation. Generic drugs generally operate on very narrow profit margins, and their steady availability is essential for patient treatment. Sandeep Pandey, Co-founder at Basav Capital, highlighted India's big share of pharmaceutical exports to the US, showing America's heavy reliance on Indian medicines.
Export impact
Shift in pharmaceutical shipments to Australia
Following the 50% tariff hike on August 27, Indian pharmaceutical exporters started shifting their shipments to Australia. This was expected to jeopardize the stability of the American Medicare system. Despite India accounting for nearly 40% of its total pharmaceutical exports in FY25, Trump spared Indian pharmaceuticals from the 50% tariff.
Supply dependence
Potential impact on Indian pharma companies
Experts have noted that the US is heavily reliant on India for its pharmaceutical supply, with nearly half of its generic drugs coming from the country. Given healthcare's critical nature and high costs in America, they don't expect major immediate tariffs on pharmaceuticals. Kotak Institutional Equities warned that if tariffs aren't reversed, companies may have to cut down their US portfolio significantly or even exit entirely.
Effects
Jefferies warns of challenges for specific firms
Jefferies warned that generic pharmaceutical makers and contract manufacturing organizations (CMOs) could face major challenges from new tariffs, due to fierce pricing competition and their heavy reliance on US sales. Companies such as Zydus Lifesciences, Dr. Reddy's Laboratories, Gland Pharma, and Biocon could be particularly vulnerable to the potential effects of tariffs, given their high percentage of revenue generated from US sales.