Pharmaceutical Sector in India: Trade Dynamics and Unexploited Potential


India has become a global powerhouse in the pharmaceutical sector, establishing itself as the pharmacy of the world. India is the largest provider of generic drugs and the biggest supplier of low-cost vaccines.[1] This rise has been more predominant in the post-Covid era, as it gave India an opportunity to establish itself in the world pharmaceutical industry.

India ranks 3rd worldwide, accounting for 10% of global pharmaceutical production by volume.[2] India’s pharma industry is touted to touch US$ 130 billion in value by the end of 2030. Given the growing global demand of medical goods, India provides a great opportunity for investors to invest in the Indian pharmaceutical industry.

India is also beginning to emerge as the hub of pharmaceutical exports, thereby playing a pivotal role in the world trade of medical goods. Exports of pharmaceutical products have grown at a rate of 8% between 2018 and 2022. India today meets nearly 20% of the global exports demand in generic drugs in terms of volume and supplies pharmaceuticals to not only developing but many developed countries, including US, West Europe and Japan. Over 50% of Africa’s requirement for generics, nearly 40% of generic demand in the US and approximately 25% of all medicine in the UK is supplied by India[3].

With an increase in pharmaceutical demand worldwide, it’s essential to understand the opportunities and challenges that the Indian pharmaceutical sector faces. This paper provides a market overview, discusses policy measures, growth drivers and untapped potential of the Indian pharma industry, for both foreign investors and Indian exporters.

Stylised Facts – Trade in Medical Goods

The medical industry has two broad segments, viz, medical goods and medical services. Medical goods include pharmaceutical products, medical equipment and other medical supplies, whereas medical services include medical insurance, telemedicine, medical value travel etc. In this paper, we will focus specifically on medical goods, with special attention to pharmaceutical products. (see Appendix Table 1).

Global Export of Medical Goods

The global medical export market stood at USD 1,520 billion in year 2022 and contributed nearly 6.6 % of global merchandise exports in 2022. World medical exports grew at a CAGR of 8.5% (see Figure 1).

The disaggregation of exports of Medical Goods reveals that pharmaceutical products have the largest share of 55% in global medical exports, while medical equipment, personal protective equipment (PPE), medical supplies and orthopedic equipment have a share of 15%, 13%, 11% and 5%, respectively in 2022 (see Figure 1).

Figure1: World Export of Medical Goods, 2018 to 2022

A substantial jump in total export of medical goods can be seen from 2019 to 2020 and then again from 2020 to 2021. This is primarily caused by a sharp rise in demand PPE kits and pharmaceutical products for the year 2020 and for the year 2021 (see Figure 1).

As pharmaceutical products constitute to over 50% of total medical good exports, I drill one level down to see which products within pharmaceutical products have the maximum share. To this end, I find that the bulk of world pharma exports are concentrated across four product categories. First being medicines (HS Code 300490 and 300439) at 46%, Medical test Kits (HS Code 300215) at 18%, Vaccines for human medicines (HS Code 300220) at 11% and Human and Animal blood for medical purposes (HS Code 300212 + 300214) at 7.4%. These 4 categories together account for 81.3% of total pharmaceutical exports in 2022 (see Figure 2).

Note that share of vaccines in world pharmaceutical exports saw a sharp rise, from 4.7% in 2018 to 13.6% in 2021 and then fell marginally to 11% in 2022. This sharp rise can be attributed to a sudden surge in demand of Covid-19 vaccines. As the pandemic came under control, the demand too flattened, as reflected in the export numbers. 

Figure 2: Top Product Categories in Pharmaceutical Exports, 2022 (% share)

Top Exporters of Medical Goods

Figure 3 below shows top exporters of medical goods in 2022. As expected, these are developed nations wherein leading medical companies, who invest heavily in R&D and have access to capital required for this industry, are housed. Germany is the top exporter of medical goods (with a share of 13% in global exports), followed closely by the United States at 12%.

Figure 3: Export of Medical Goods by Product Category, Top 15 Exporters, 2022

Further, top 10 exporters of medical goods in 2022 accounted for nearly 75% and top 15 exporters contribute to 85% of global medical good exports, indicating that the global export market for medical goods is concentrated amongst a few countries. (See Figure 3)

Pharmaceutical products make the largest component of medical exports for a majority of countries, especially for countries such as Switzerland, Italy, and India, where it accounts for more than three-fourth of its medical exports.

India’s Medical Good Exports

India’s export of medical goods stood at USD 27.4 billion in 2022, with an impressive CAGR of 7.5% between 2018 and 2022. Of these, pharmaceutical goods have the largest share, contributing to 80% of India’s total medical good exports (USD 21.6 billion in 2022) and witnessing a compounded annual growth rate of ~8%.

Figure 4A: India’s Export of Medical Good, 2018 to 2022, Billion USD
Figure 4B: Compounded Annual Growth Rate of Each Product Category within Medical Goods, 2018 to 2022

Though medical and orthopaedic equipment have a much lower share in India’s total medical good exports, they have grown at an impressive rate of 9.8% and 9.4%, respectively. (see Figures 4A and 4B). 

It is thus interesting to note that all product categories within medical goods have grown significantly in this 5-year period. However, since pharmaceutical products occupy the largest share in India’s export basket of medical goods, this category is a major driver of India’s medical good exports.

While Indian exports of medical exports have been on a rise, on comparing India’s performance viz-a-viz other major exporters of medical goods, we find that India ranks 14th with a share of only 2% in the global export of Medical Goods in 2022 (see Figure 3).

With this context, in what follows, we will look into India’s untapped export potential, in terms of both products and geographies. We will also discuss the status of foreign direct investment in India’s pharmaceutical industry and where India lies in terms of FDI performance.

Does India have an Untapped Potential in Medical Goods Trade?

In this section we explore if India has an untapped potential in trade of medical goods. First, we analyse India’s export performance in this sector, both in terms of products and geographies. We also substantiate this analysis by the use of export intensity indices, that help in measuring whether India’s exports of medical goods are skewed in a particular direction. Second, we move on to the import side to examine how well India is faring in terms of imports of medical goods.

A. Untapped Export Potential in terms of Products

Pharmaceutical Products

As shown above, pharmaceutical products constitute over 50% of global medical good exports (see Figure 1). Within pharmaceuticals, four products categories, viz, Medicines (HS Code 300490 and 300439), Medical test Kits (HS Code 300215), Vaccines for human medicines (HS Code 300220) and Human and Animal blood for medical purposes cover over 80% of world pharma exports (see Table 1).

Share in World Pharma Exports (Column A)Share in India’s Pharma Exports (Column B)India’s Share in World Exports (Column C)
Medicaments for therapeutic prophylactic use + Medicaments; containing hormones
(HS Code 300490 + 300439)
Medical test Kits
(HS Code 300215)
Vaccines for human medicines 
(HS Code 300220)
Blood, human or animal, antisera
(HS Code 300212 + 300214)
Source: UN COMTRADE Data, 2024. Numbers based on author’s calculations
Note: Pharmaceutical Products contain 87 HS 6-digit product codes. These top products have been selected as they have a share greater than 3% in total world pharmaceutical exports.
Table 1: Export of Top Product Categories in Pharmaceutical Products, India vis-à-vis World, 2022

On a closer look at India’s performance in these 4 product categories, we find that while medicines have a substantial share in India’s pharma exports (~70%, see Column B)[4], medical test kits amount to only 1% in India’s export of pharma products. In comparison, the world export of medical test kits accounted for nearly 18% of total pharma products.

Similarly, export of vaccines and blood, human or animal accounted 4.4% and 0.6% of India’s total pharma exports, while the comparative number for the world was at 10.8% and 7.4% respectively[5] (see Table 1).

Column C depicts India’s share in world exports of these top pharma product categories. As can be seen, India’s share has been very low, to the tune of 0.1% for medical test kits, 0.4% for blood, human or animal and 1% for vaccines for human medicines (column C, Table 1)[6].

Other Medical Goods

When we look at other medical goods, we find that India’s share is less than 1% across all other categories, with the exception of Medical Supplies, where it is marginally above at 1.2% (see Table 2).

We also provide a comparison of India vis-à-vis top 5 exporters of medical goods. As seen in Table 2, Germany is a leader in the supply of pharmaceutical products, whereas USA is clearly ahead in the export of medical and orthopedic equipment, supplying over 1/3rd of world demand in value terms. China has a lead in the export of Personal Protective Equipment (PPE), contributing to 30% of world exports. USA is also a leader in the export of medical supplies, contributing to 18.5% of world export.

A – Pharmaceutical products2.6%14.9%10.4%2.8%12.5%12.1%
B – Medical equipment0.6%14.3%18.4%9.7%2.8%3.2%
C – Orthopaedic equipment0.6%7.8%14.9%9.5%4.8%7.5%
D – Personal protective equipment0.9%9.8%8.4%30.6%2.4%0.8%
E – Other medical supplies1.2%11.0%18.4%12.8%3.5%1.3%
Source: UN COMTRADE Data, 2024. Numbers based on author’s calculations
Table 2: Share of India and Top 5 exporters in world export of Medical Goods, 2022

Demand for PPE particularly rose after the onset of COVID-19 pandemic. Masks, body coveralls, face shields, gloves etc. were high in demand as they helped limit the spread of the pandemic. These further continued to be in demand as new variants of the COVID-19 strains emerged. Production and export of PPE had major unexploited production and export potential for India. These products are not very technology intensive, unlike medical and orthopedic equipment which are both capital intensive[7] and require sustained investment in R&D to match the world demand.  

Both for developed and developing countries, expenditure on R&D positively impacts export performance. This is particularly true for technology intensive products like medical and orthopedic equipment[8]. Hence, for medical and orthopedic equipment, India would need systematic increase in R&D expenditure to upgrade its technology and contribute significantly to world exports. Medical devices are products that are used for detecting diseases, diagnosing penitents, and treating them. They also include products that in regularly monitoring health of patients. Currently, India’s share in the world export of medical and orthopedic equipment stands at 1.2%, combined, which is much lower as compared to other countries (Table 2).

Even in the case of medical supplies, that are categorised as low-value items and are less capital intensive, India has not been able to establish itself among the top exporters globally and contributes to only 1.2% of total world exports, while China stands at a mighty 13%.

Pioneers in the field of medical good exports are typically advanced countries with substantial investment in R&D in their healthcare sector. Due to paucity of data, we take share of healthcare expenditure as a percentage of GDP, as a proxy for R&D expenditure in healthcare. These numbers are shown in Figure 5. India’s spending in healthcare sector as a percentage of GDP is only 3%, while that of top medical good exporters lies much above 10%, with China being the only exception with an approximate spending of 6% on healthcare[9].        

Figure 5: Expenditure on Healthcare as a percentage of GDP for Top 5 Medical Good Exporters, 2022

B. Untapped Export Potential in terms of Geographies

To measure India’s performance in terms of untapped geographies, we will look at top importers of medical goods and compare India’s share in total medical good imports of these countries. This would give us an idea about India’s presence in the top importing countries.

Figure 6A shows top importers of medical goods in 2022. We consider top 15 importers as they constitute 75% of total world imports of medical goods. As can be seen, USA was the top importer of medical goods, importing US$ 306 billion worth of medical goods. USA alone contributed to 20% of world imports of medical goods in 2022. Pharmaceutical imports of USA amounted to 12% of total world medical good imports. Germany ranked second, with imports of medical goods worth US$ 137.4 billion, less than half of the US import value.

Figure 6A: Top 15 Importers of Medical Goods, 2022
Figure 6B: India’s Share in Total Medical Good Imports by Top 15 Importers of Medical Goods, 2022

Figure 6B shows India’s share in total imports of medical goods by top 15 importers. As can be seen in the figure above, India is not the country from which top importers are importing medical goods. With the exception of USA and Australia, where India’s share in medical good exports was 3.4% and 2.5%, respectively, India’s share has broadly remained in the range of 0.5% to 1.5%.

Market for Pharmaceutical Exports

India is the leading supplier of pharmaceuticals to least developing countries, contributing to 30% of their total import of pharmaceuticals and 20% of total medical good products[10]. However, it is yet to make its mark in developed countries, which are typically the top importers of pharmaceuticals. Figure 6C depicts India’s share in pharmaceutical product imports for top 15 importers of medical goods in 2022.

Figure 6C: India’s Share in Pharmaceutical Product Imports by Top 15 Importers of Medical Goods, 2022

One of the factors impacting lower penetration of India in pharmaceuticals within these regions are lower spending on R&D. As a result of this, India is not able to manufacture cutting edge pharmaceutical products, leading to higher dependence on import of raw materials which in turn causes an increase in cost of production and lower profitability rates[11]. Other factors include a non-aggressive entry strategy, low ease of doing business and lack of regulatory guidelines[12].

C. Untapped Export Potential Based on Export Intensity

How do India’s exports of medical goods to a given destination region (r) compare with the structure of competing country group’s (c) exports to the region r? Is India supplying medical goods that are important to a given destination region, and are there opportunities that India is missing and can potentially grow into?  Is India’s export of a given medical good underrepresented or “biased” against a given destination region as compared to India’s exports to other regions and world as a whole? To help answer these questions and to identify the products (p) and markets (r) where India has unexploited export potentials, we estimate export intensity indices as defined below.

For competing country groups, we consider the top 14 exporters of medical goods (as depicted in Figure 2). The list of destination regions (r) considered for the analysis include: (i) Africa, (ii) Americas, (iii) Central, South & West Asia, (iv) East &nd South-East Asia, (v) Europe and (vi) Oceania.

A value greater than 1 for EI indicates that the share of product p in India’s total manufactured exports to a given region r is larger than the corresponding share of the competing country group; values less than 1 are suggestive of unexploited export potential for India in a given product p and in a given market r.

Product CategoryStatisticAfricaAmericasCentral South & West AsiaEast & South East AsiaEuropeOceaniaWorld
All Medical Goods (196)# of Goods with EI> 170504753395958
Extensive Margin35.7%25.5%24.0%27.0%19.9%30.1%29.6%
A – Pharmaceutical products (87)# of Goods with EI> 145363130243937
Extensive Margin51.7%41.4%35.6%34.5%27.6%44.8%42.5%
B – Medical equipment (40)# of Goods with EI> 12230282
Extensive Margin5%5%8%0%5%20%5%
C – Orthopaedic equipment (16)# of Goods with EI> 15242013
Extensive Margin31%13%25%13%0%6%19%
D – PPE (20)# of Goods with EI> 17237355
Extensive Margin35%10%15%35%15%25%25%
E – Other medical supplies (34)# of Goods with EI> 111861410611
Extensive Margin32%24%18%41%29%18%32%
Source: UN COMTRADE Data. Numbers based on author’s calculations. Parenthesis in column 1 detail total number of HS 6-digit product codes within the said category
Table 3: No of Medical Goods (6-digit HS codes) where values of EI ≥1

Table 3 provides number of goods with EI > 1 and extensive margin of India’s export of medical goods, that is, number of medical goods (6-digit HS codes) where values of EI are found to be equal to or greater than 1 divided by total number of HS 6-digit codes. These are then segregated based on the 5 product categories within medical goods.

Looking at the table above it can be said that India has a fairly large unexploited export potential in case of medical equipment, across all regions considered in the analysis above. Similarly, as compared to the competitor groups, India’s export of orthopaedic equipment to Europe and Oceania lags behind and posses a great export potential. While India’s export of PPE to Africa and East and South East Asia has done well, in comparison to the top exporters, there lies unexploited export potential in developed countries like Americas and Europe. In terms of pharmaceutical products and other medical supplies, India has done fairly well when compared to the top exporters.

D. Untapped Domestic Production Potential in Bulk Drugs and Heavy Dependence on Imports

While India’s export of pharmaceuticals, in terms of volume, has been substantial, it is still critically dependent on China for supplies of intermediates or ingredients used for the manufacturing of a drug or medicine. These intermediates are called Bulk Drugs or Active Pharmaceutical Ingredients (APIs). APIs are particularly important to look at as they are an important segment within the pharmaceutical products and have a 35% market share[13].

Figure 7: China’s Share in India’s Bulk Drug (API) Imports for Selected Years

China accounted for majority of India’s bulk drug imports (refer figure 7). This share went up from 0.4% 1990 to 57% in 2010 and now stands at 49.5% of India’s total imports of bulk drugs in 2022. While originally India was self-sufficient in production of APIs, over the years, it moved away from domestic production and started relying on imports[14]. This move was intentional as India pharmaceutical firms wanted to move towards producing higher value addition products in this value chain, namely formulations or medicinal end-products and imported the lower-value added bulk medicines from abroad.

Figure 8 shows India’s export of formulations from 1988 to 2022. India’s exports grew from a mere USD 230 million to USD 1 billion in 2001 and then shot up to USD 5.7 billion in 2010 and reached USD 18 billion in 2022. During this 35-year period, formulation exports by India grew at a CAGR of 13.7%.

Figure 8: India’s Gross Export of Formulations (Billion USD), 1988 to 2022

Meanwhile, China also developed a niche in manufacturing of APIs by relying on its less regulatory framework, robust infrastructure and financial incentives, all contributing towards large economies of scale and reducing the cost of manufacturing APIs.

While playing to one’s comparative advantage and slowly progressing up the value chain are the basic principles of international trade, India’s dependence on China has been very skewed. This skewedness became more prominent after the outbreak of COVID-19 pandemic and the lockdowns imposed in China. For certain product categories, China was the sole or the majority supplier. For instance, China supplied nearly 99% of imports of 6-APA (6-Aminopenicillanic acid) which is categorised by WHO as an essential medicine. Further, China accounted for nearly all of imports of penicillin and its salt, which are again an active ingredient for antibiotics (HS code 29411010)[15].

In a move to correct this trend, the Government of India has announced various schemes to ramp us its domestic production and to reduce India’s import dependence on API.[16] With these India has started to diversify its import partners of APIs. Table 4 below compares India’s top 15 import partners of APIs in 2017 and 2022 – pre and post COVID years. These top 15 importers contributed to 90% of India’s total import of APIs in 2017 and 93.3% in 2022.

India’s import diversification efforts are clearly visible looking at these numbers. Share of China has come down from 54% to 49.5%, while that of Belgium, Switzerland, Netherlands, Austria have increased by 2 percentage points in these 5 years. 

United States27.4%8.2%
Korea, Rep.121.9%1.5%
United Kingdom131.6%1.4%
Hong Kong, China150.2%1.0%
Source: UN COMTRADE Data. Numbers based on author’s calculations
Table 4: India’s top 15 Import Partners of APIs, 2017 and 2022

Recently, Japanese companies have been invited to invest in the Indian Pharmaceutical and Medical Device Industry. This collaboration, if successful can further help India in reducing its dependence on China for import of APIs.

However, India still has a long way to go. India not only needs to further diversify its import partners (as China’s current share continues to be half of India’s total imports), but it also needs to ramp us domestic production in order to shield itself from global supply fluctuations.  

FDI in India’s Pharmaceutical Industry


Healthcare sector has always been a core priority for national development for most of the countries.  Ensuring easy access to health-related services and goods is an important policy objective for countries both developed and developing. COVID-19 pandemic put a considerable strain on the healthcare sector across the globe but also provided opportunities for countries to invest more in this sector.

India’s pharmaceutical industry is among the leading global producers of cost-effective generic medicines and vaccines and has seen substantial policy changes and inflow of investment from abroad over the years[17]. The cumulative FDI equity inflow in the Drugs and Pharmaceuticals industry was US$ 21.58 billion during the period April 2000- September 2023. This constitutes to 3.3% of the total FDI inflow received across sectors[18]. Pharma sector also ranked 9th in terms of total FDI inflows (See Figure 9).

For Greenfield pharmaceuticals projects, up to 100%, FDI has been allowed through automatic route. For Brownfield pharmaceuticals projects, FDI allowed is up to 74% through automatic route and beyond that through government approval.

Figure 9: Sector-wise FDI equity Inflows, April 2020 to September 2023

In the greenfield category, companies establish their subsidiary and start their own production by constructing new plants or facilities from the ground up. Whereas, under brownfield investment, companies buy or lease existing facilities to begin a new production activity.

There is a network of 118 pharmaceutical clusters that span over 19 states and union territories, with majority of pharma clusters (40) in Maharashtra[19].

Policy Initiatives by the Government of India

Government of India has introduced various policy initiatives to boost the pharmaceutical sector in the country. These are well documented in the literature[20]. Here we mention the main policies implemented in this sector.

  • National Medical Devices Policy, 2023 was approved by the cabinet in April 2023. This policy is expected to enable the growth of medical device sector to meet the public health objectives of access, affordability, quality and innovation.
  • Scheme for Development of Pharma industry is an umbrella scheme proposed by the Department of Pharmaceuticals. This comprises of assistance to bulk drug industry for common facilitation centres, medical device industry for common facilitation centres, and assistance to pharmaceutical Industry (CDP-PS), Pharmaceutical Promotion and Development Scheme (PPDS), Pharmaceutical Technology Upgradation Assistance Scheme (PTUAS)
  • Strengthening of  Pharmaceutical Industry (SPI) scheme that has a total financial outlay of INR 500 crore (US$ 60.6 million) aims to support the existing pharma clusters and MSMEs across the country in order to improve their quality, sustainability and productivity.
  • Ayushman Bharat Digital Mission (ABDM) – Under this, citizens will be able to create their ABHA (Ayushman Bharat Health Account) numbers, to which their digital health records can be linked. This will enable creation of longitudinal health records for individuals across various healthcare providers and improve clinical decision making by healthcare providers.

Major Pharma MNCs in India

Major foreign investment companies in the India’s pharmaceutical industry are AstraZeneca (UK), GSK (UK),  Novartis (Switzerland), Pfizer (USA), Teva Pharmaceuticals (Isreal), Mylan Pharmaceuticals (USA), and Johnson & Johnson (USA).

Major global India companies, within the pharma sector are Dr. Reddy’s Laboratories Ltd, Divis Laboratories Ltd, Zydus Lifesciences and Sun Pharma. 

Active pharmaceutical ingredients represent a crucial component within the pharmaceutical industry, constituting approximately 35 percent of the market. Key Indian players in the India API market include, Solara, Aurobindo Pharma Limited, Dr. Reddy’s Laboratories, Lupin Limited, Sun Pharmaceutical Industries Limited, Divis Laboratories Ltd., Aarti Drugs Ltd., Neuland Labs, Century Pharmaceuticals Ltd., and Proventus Life Sciences Pvt Ltd.

India’s Performance Compared to Other Countries

Figure 10 below shows top 10 countries by number of inbound FDI projects in 2019-2020. USA tops the charts in terms of inbound FDI. China ranks 2nd with nearly half as many FDI projects, however it attracted the greatest number of FDI projects in clinical research and trials. In case of USA, most of these investments came from Germany (20), the UK (18) and Switzerland (10).

Other leading countries for inbound investments in the pharmaceutical products subsector are Canada, China, France, Germany, Ireland, the Netherlands, Russia, Spain, Switzerland and the UK[21].

This clearly goes to show how despite many efforts by the government, India lags behind countries that are at the forefront in attracting FDI in the pharmaceutical sector.

However, when we look particularly at the South Asian region, we find that India has performed well vis-à-vis other South Asian countries in terms of FDI in the healthcare sector. While China was the largest receiver of inward greenfield FDI during 2008-2020 in the healthcare sector, receiving inward FDI to the tune of US$ 31 billion, India stood second at  US$ 14 billion, followed by Singapore (US$ 9 billion) and Malaysia (US$ 5 billion). Further, in 2018 increase in the inward greenfield investment in the South Asian region was mainly led by increased inward investment to India and China. Inward greenfield investment in healthcare in India increased by 885% and that in China by 22%.[22]

Figure 10: Top 10 countries by number of inbound greenfield FDI projects in Pharmaceuticals, 2019-2020

Countries which are major investors in the healthcare sector include primarily developed countries along with a few Asian economies. Between 2008 and 2021, largest investor in the Asia-Pacific region was United States of America, accounting for 35% of all greenfield investment in the region. In descending order, Switzerland, Japan, Germany and France followed the United States as the largest sources of investment. Together, those five countries accounted for 66 per cent of all health-related investment in the Asia-Pacific region[23].

Inward investment from these countries should be a primary focus for India, in order to further boost the healthcare and pharmaceutical sector in the country.

Type of Inward FDI In Indian Pharmaceutical Sector

Emphasis should not only be on the quantum of FDI inflows but also on the type of FDI entering into the economy. According to standard literature on FDI flows, vertical FDI takes place when factor prices between the host and recipient country significantly differ, when the host country market for that industry is relatively small and when service link costs are low[24]. Horizontal FDI on the other hand is essentially for exploiting the domestic market. In case of India, inward FDI is mainly horizontal rather than vertical.

This also holds true for the pharmaceutical sector, where inward FDI is primarily market- seeking. With a population size of ~1.4 billion and low health standards, the country provides ample opportunities to attract foreign firms. However, focus should also be on brining in vertical FDI into the country.

Even though most of the major multinational companies in the pharmaceutical sector have a presence in India and India has done well in the past in comparison to other South Asian countries, FDI in the pharmaceutical industry is rather low (as depicted in Figure 9 and 10). The investment climate according to some of the MNCs is not complete, which explains why FDI in the pharmaceutical industry in India is limited. In the section that follows, we discuss factors that impact FDI inflows in the pharmaceutical sector.

Factors Impacting the Flow on FDI in Pharmaceutical Sector in India

FDI inflows help in improving the productivity by bridging the technology gap that exists in developing countries like India, by providing adequate resources and by offering market access to new areas and products. Many studies in the past have looked into the impact of FDI on export promotion and found the impact to be positive and significant[25].

For India, the major advantage is availability of labour with good skills at a low cost. This makes India an attractive destination for FDI in the pharmaceutical sector as it becomes cost-effective for MNCs to set-up base in India. Further, with growth in per-capita incomes and rise in awareness, there has been greater inclination towards health insurance and spending capacity of patients, providing further avenues for development of the pharma sector. Policy support, as discussed above has been another major contributor towards rise in FDI in the pharma sector.

While benefits of FDI coming into an economy are well known, their full strength cannot be realized if the host country is not able to absorb the technological advantages that FDI inflows bring along. OECD report (2002 pg 69) points out that “…. developing countries need to have reached a certain level of educational, technological and infrastructure development before being able to benefit from a foreign presence in their markets.”. It is therefore important to look closely at the factors that would help India attract the right type and quantum of FDI.

Many studies have looked into the factors that impact the inflow of investment in a country. Most commonly analysed factors are demographic indicators like population and market size, availability of cheap labour, exchange rate fluctuations, trade openness, ease of doing business and growth in healthcare financing products[26].

Recent studies have also looked at the importance of Intellectual Property Rights (IPR) protection for foreign direct investment (FDI) inflows. Historically, the absence of an IPR regime in India helped in imitating or reverse-engineering pharma products, which eventually lead to a substantial growth in this sector. However, in the absence of an IPR regime, FDI inflow in innovative products was disincentivised as it impacted the profitability of firms. With the ratification of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement in 1995, foreign investors became more confident in the investing in India, allowing for greater FDI into the sector.

Investment Opportunities in India’s Pharmaceutical Sector

India is heavily dependent on China for various pharmaceutical products. India’s 49.5% of total pharma imports are from China. Similarly, bulk drug imports from China also contribute to 75% of total imports in the pharma sector[27]. Production Linked Incentive (PLI) scheme announced by the Government of India can help reduce this dependence on China. Coupled with other policy initiatives, the government’s focus on boosting the pharma sector and on-going global tension with China post the COVID-19 pandemic, foreign investors have ample opportunity to invest in India’s pharmaceutical sector.

Furthermore, patents worth USD 251 Billion are expected to expire between 2018 and 2024, globally. This would also present an opportunity to the Indian pharmaceutical industry to fill in the gap and make most of this opportunity[28].

There are some partnerships that are already on way in the pharma sector. In a recent bid, an MoU was signed in June 2023 between the Government of India and Government of Suriname for Recognition of Indian Pharmacopoeia (IP) in Suriname.


India’s medical goods industry and particularly the pharmaceutical sector has been booming over the years. India’s export of medical goods stood at USD 27.4 billion in 2022, with an impressive CAGR of 7.5% between 2018 and 2022. As has been the case with many countries, COVID-19 pandemic has helped catalyse the growth in this sector. Availability of skilled labour at low cost and India’s market size provide the country with a huge opportunity to become both an exporter and a hub for inward investment.

While India supplies medical goods to over 200 countries, it still has massive untapped export potential both in terms of products and geographies. There is still scope to enter the advanced country markets in medical equipment, orthopaedic equipment and PPE. India also needs to reduce its dependence on China on import of APIs or bulk drugs.

Similarly, for India to attract inward FDI, it needs to focus on major investors in the healthcare sector that include United States of America, Switzerland, Japan, Germany and France. These countries, however might be more focussed on vertical FDI (new innovations) instead of horizonal FDI. This can be achieved if India, like China, provides these investors low cost and low red tape environment with a promising IPR regime. This will also help attract relevant R&D in the healthcare sector and give India the boost to move the value chain. However, this is a long-term process and might require time to yield results.


Appendix Table 1: Categorisation of Medical goods

Product categoryCoverage
A – Pharmaceutical productsProducts as defined by the WTO Pharma Agreement (HS chapter 30, and headings 2936, 2937, 2939, 2941)
B – Medical equipmentMedical equipment and machines (majority of products in HS chapter 90) including magnetic resonance imaging apparatus, X-ray tubes, or operating tables
C – Orthopedic equipmentOrthopedic devices such as wheelchairs, spectacles, hearing aids, or artificial teeth
D – Personal protective equipmentEquipment and single-use items such as gloves and face masks (excluding protective garments as HS classifications largely overlap with products for nonmedical use)
E – Other medical suppliesHospital and laboratory inputs and consumables, such as syringes
Source: WTO Secretariat. See Appendix Table 2 for a detailed list of medical products

Appendix Table 2: List of HS-6 Digit Codes covered under Medical Goods (HS 2017 Nomenclature)

A – Pharmaceutical productsB – Medical equipmentC – Orthopaedic equipmentD – Personal protective equipmentE – Other medical supplies

[1] Dhirendra Gajbhiye, Sonam Choudhry & Shobhit Goel (2022). Changing Dynamics of Indian Pharmaceutical Sector: Opportunities and Challenges. Journal of Development Economics and Finance, Vol. 3, No. 1, pp. 77-98

[2] Department of Pharmaceuticals

[3] Verma (2023), Leapfrogging as Pharma Leader of the World, PIB Blogs

[4] This is in line with the existing literature on India being touted as the ‘Pharmacy of the World’

[5] World export of top pharma products are also depicted in Figure 2

[6] India’s in vaccines is primarily in terms of production (volume) and not in terms of value.


[8] See Kumar and Siddharthan (1993), Ganguli (2007), Rentala (2014) and Bhat and Momaya (2020)

[9] India also has the lowest per-capita expenditure on medical devices compared to other BRICS countries. India spends USD 3 per capita on medical devices, as compared China (USD 7), Brazil (US$ 21) and Russia (USD 42) (Dhirendra Gajbhiye, Sonam Choudhry & Shobhit Goel (2022). Changing Dynamics of Indian Pharmaceutical Sector: Opportunities and Challenges. Journal of Development Economics and Finance, Vol. 3, No. 1, pp. 77-98)

[10] Based on author’s calculations using UN COMTRADE Data. Least Developing Countries are as defined by WTO.

[11] Dhirendra Gajbhiye, Sonam Choudhry & Shobhit Goel (2022). Changing Dynamics of Indian Pharmaceutical Sector: Opportunities and Challenges. Journal of Development Economics and Finance, Vol. 3, No. 1, pp. 77-98

[12] EY FICCI Report

[13] Refer Indian Pharmaceutical Industry (2023), India Brand Equity

[14] T.C. James (2015) and Chaudhuri (2021), India’s Import Dependence on China in Pharmaceuticals: Status, Issues and Policy Options, RIS Discussion Paper

[15] Dhirendra Gajbhiye, Sonam Choudhry & Shobhit Goel (2022). Changing Dynamics of Indian Pharmaceutical Sector: Opportunities and Challenges. Journal of Development Economics and Finance, Vol. 3, No. 1, pp. 77-98

[16] A PLI scheme has been announced to encourage Indian manufacturers to produce APIs. To support this, the government granted funds worth US$ 932.66 million.

[17] Refer Bhandarkar and Rajeev (2022) for details on how FDI policy has evolved over the years.

[18] FDI Factsheet, Department for Promotion of Industry and International Trade (DPIIT)

[19] Survey of Pharma Clusters, Department of Pharmaceuticals, Ministry of Chemicals & Fertilizers, Government of India

[20] Refer Indian Pharmaceutical Industry (2023), India Brand Equity Foundation and Investment Opportunities in India’s Healthcare Sector (2021), NITI Aayog

[21] Global Data’s FDI Projects Database

[22] Foreign Direct Investment and Policies in the Health Sector in Asia and the Pacific 2022-2023, UNESCAP

[23] Foreign Direct Investment and Policies in the Health Sector in Asia and the Pacific 2022-2023, UNESCAP

[24] Refer Fukao et al., (2003) 

[25] Refer Athukorala and Menon (1995), Zhang and Song (2001), Zhang and Felmingham (2001), Zhang (2005), Kohpaiboon (2006a), and Piamphongsant (2007); 

[26] Refer Chakrabarti (2001), Havlik (2005a), Demekas et al (2005), Xing (2006), Alba et al (2010), Seim (2009), Bailey (2018), and Tewathia (2014)


[28] Investment Opportunities in India’s Healthcare Sector (2021), NITI Aayog