Why Indian pharma sector is exempt from Trump's tariffs

New Delhi, Aug 28 India's role as the world's leading generic drug manufacturer may explain why the pharmaceutical industry has been excluded from the US's tariffs, according to experts.

US President Donald Trump has implemented an additional 25 per cent tariff on India, effective from Wednesday, bringing the overall tariff to 50 per cent. However, India’s pharma exports to the US (accounting for 35 per cent of India’s total pharma exports) have been excluded from the tariffs. The sector is currently under review as part of the Section 232 investigation.

Indian Pharmaceutical Alliance secretary general Sudarshan Jain stated that generic medication -- key for providing affordable healthcare in the US -- is the major reason for the exclusion.

India provides the most affordable medicines and is the largest producer globally. The pharmaceutical sector in the country supplies nearly 80 per cent of the world’s generic medicines.

According to a recent report by India Ratings and Research (Ind-Ra), the low-cost and high-value proposition of Indian generic exports offers significant cost advantages to the US healthcare industry.

It further noted that the proportion of the US’ contribution to pharma revenue has been steadily declining over the past few years. This is due to price erosion and its impact on margins and returns, the report said.

“Most Indian pharma players have a generic business in the US market, earning thin operating profitability. However, Indian companies have a diversified revenue model and a healthy balance sheet. There is no major risk to liquidity in the sector (large cash balances-10 per cent-11 per cent of revenues),” said Vivek Jain, Director, Corporates, India Ratings & Research.

"Furthermore, most companies have sufficient headroom under debt covenants and diversified funding sources. Hence, any material impact from future tariffs on Indian pharma is highly unlikely," he added.

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