India’s low pharma costs are good for drug companies, good for consumers

India is a shining light in the global pharmaceuticals industry with its unique blend of low-cost manufacturing, R&D infrastructure and skilled workforce. These attributes, in addition to the country’s gigantic domestic market and world dominance in generics production, make it an appealing location for companies looking to outsource.

India’s growing economy, population and demand for Western medicines also bolster the market and encourage partnerships between Western companies and Indian production centers.

On the home front, India’s domestic industry is providing Indians with essential generic drugs at low prices.

“Thanks to the dexterity of the pharmaceutical industry, the presence of a huge number of trained chemists and a large domestic market, drugs are incredibly cheap in India, and India is one of the greatest producers of generic drugs,” said Sumit Ganguly, professor of political science at Indiana University.

“In fact, even though I make a decent salary and have access to good health care, I still purchase some essential (and routine) drugs here in New Delhi from a reliable chemist’s shop,” Ganguly said.

The government of India is attentive to keeping medications affordable to Indians, and maintains its own drug store chain. It’s also partnering with small and medium manufacturers to continue the supply chain’s momentum in producing low-cost, high-quality generic medicines.

Drug prices are low in India due to intense growth and competition, reports McKinsey & Company. This growth is driven by India’s enhanced medical infrastructure, rise in chronic disease diagnosis and treatment, launches of patented products and new market creation.

India’s ability to manufacture low-cost generic alternatives also stems from economic factors favoring the industry, including competitive land rates, cheap labor, low-cost utilities and affordable equipment.

Drug affordability will only continue to rise due to sustained income growth and increased insurance coverage in India, according to McKinsey. Furthermore, government healthcare spending in India has been on a steady upward trajectory, growing 18 percent annually.

Research and development are also key drivers behind development of generics. “Given the increasing pressures for cost-cutting in the developed markets, R&D expenditure in the life sciences has seen a migration towards Asia,” including India, said Gaurav Shah, former fellow at Cornell University’s Johnson School of Management. Shah said that countries like the United States “could benefit from the lower R&D costs in emerging markets like India.”

The industry has made significant investments in upgrading its manufacturing plants to international standards such as those set by the U.S. Food and Drug Administration, according to a 2015 report from Deloitte. The FDA maintains two local inspection offices, and has approved some 600 facilities to date.

On average, the cost of establishing an FDA-inspected plant in India is approximately 50 percent less than in developed countries. Operation and production costs run 40 to 70 percent lower than in developed nations (factors include local equipment sourcing, tax incentives and a focus on process innovation) and labor costs are on average 60 to 70 percent less than developed countries.