New Delhi [India], April 3 : The recent imposition of a 27 per cent reciprocal tariff on Indian exports by the United States, while exempting the pharmaceutical sector, has raised concerns about potential future trade restrictions on drug exports.
According to a report by HDFC Securities, pharmaceutical products could become subject to duties under the Trade Expansion Act of 1962 in future trade actions.
The Trade Expansion Act of 1962 grants the U.S. President the authority to modify international trade tariffs, including imposing new duties on imports. While Indian pharmaceutical exports remain unaffected in the first round of tariffs, the report warned that this relief may be temporary.
It said, "The key concerns around price increase for the generic medicines in the US, drug shortages, rationalization from low-margin products, and supply chain disruption are temporarily alleviated, for now. However, pharmaceutical products may become subject to duties under future actions pursuant to the Trade Expansion Act of 1962".
Indian generic drug manufacturers play a significant role in the U.S. healthcare system, supplying nearly 40 percent of the generic drugs imported into the country. In FY24, Indian pharmaceutical exports to the U.S. were valued at approximately USD 8 billion, with the industry witnessing an 8 percent compound annual growth rate (CAGR) over FY15- 24.
Despite being exempted from tariffs, Indian pharmaceutical stocks have already reacted to the potential risk of future levies. The Indian pharma index has declined by nearly 10 per cent in the past three months. Analysts believe that a continued exemption would be beneficial for the sector, ensuring steady exports to the U.S.
However, if the U.S. imposes tariffs on Indian pharmaceutical products in the future, both countries could face adverse consequences. The U.S. relies on low-cost Indian generics to control healthcare costs. Any additional tariffs on pharmaceutical imports could drive up drug prices in the U.S., leading to higher healthcare inflation.
Meanwhile, Indian manufacturers, already operating on thin margins in the generics market, may struggle to absorb these additional costs without passing them on to consumers or insurers. This could result in drug shortages and further margin compression for Indian pharma firms.
The Indian pharmaceutical industry has long been a crucial part of the U.S. healthcare system by providing cost-effective generic medicines. Any future tariffs could disrupt this balance, impacting both the affordability of medicines in the U.S. and the profitability of Indian pharmaceutical companies.