By Dalal Street Investment Journal (DSIJ)
India’s pharmaceutical sector is eyeing a historic milestone, with exports projected to hit $30 billion by 2026. While the shift from simple generics to complex biologics offers a multi-billion-dollar opportunity, the path isn't without hurdles. Yet, staying ahead requires navigating six specific challenges that are dragging down performance.
Pharma remains one of India’s key export sectors and has been in the spotlight over the past six months due to tariff concerns, pricing pressure and regulatory developments. However, beyond the near-term noise, the long-term growth story remains strong. Union Minister Dr Jitendra Singh recently highlighted this shift, noting that pharma exports, currently valued at around $27.8 billion, are expected to cross the $30 billion mark by end-2026. At the same time, India’s domestic pharma market, estimated at about $60 billion today, is projected to more than double to nearly $130 billion by 2030, underscoring the sector’s strong growth potential.
Currently, there are around 800 medical device manufacturers in the country, and India's annual growth of the MedTech sector is 15 to 20%, said Dr Jitendra Singh. For decades, India has dominated the small-molecule generic market. However, the future of medicine lies in biologics (biologics are complex medicines made from living cells).
Patent expiries of major biologic drugs in the U.S. and E.U. are accelerating, creating a multi-billion-dollar opening for cost-competitive biosimilar manufacturers and accelerating the global shift toward affordable biologic therapies. Indian firms must invest heavily in specialised manufacturing facilities capable of handling microbial fermentation and mammalian cell culture. Capturing even 20% of the global biosimilar market could add billions of dollars to India’s export tally.
Dr Jitendra Singh said the rapid growth of India’s biotech ecosystem, from about 50 Startups in 2014 to more than 11,000 today, reflects the sector’s potential to drive the country’s economic and healthcare goals. He noted that India is now recognised as a global supplier of vaccines, with more than 60% of the world’s vaccines manufactured here and over 200 countries receiving Indian-made doses.
The minister was speaking after the signing of an official Memorandum of Understanding (MoU) between the Department of Biotechnology (DBT), Government of India, and the Government of Uttar Pradesh. The agreement, executed through DBT’s Biotechnology Industry Research Assistance Council (BIRAC) and the Uttar Pradesh Promote Pharma Council (UPPPC), is part of a Centre–State partnership model to accelerate innovation, entrepreneurship, and investment in the pharma, biotech, and MedTech sectors.
The Union Budget for 2026-27 introduced the Biopharma SHAKTI initiative, committing ₹10,000 crore (about $1.2 billion) over the next five years to help position India as a major player in biologics and biosimilars globally. This significant investment aims to strengthen India’s domestic manufacturing capabilities, improve clinical research infrastructure, and modernise regulatory systems. The overall goal is to encourage innovation in the sector and reduce the country’s reliance on imports for advanced biopharmaceutical products.
From global funding shortages to rising costs at home, these six challenges are currently dragging down the Indian pharma sector, forcing companies to fight harder than ever to protect their profit margins.
While the government pushes for volume, the high-value CDMO (Contract Development and Manufacturing Organisation) sector is facing a muted phase. Companies are reporting slower early-stage order inflows due to an inconsistent recovery in US biopharma funding.
There is a constant need for significant and uneven R&D spending (sometimes reaching 7% of revenue) to build specialised pipelines in areas like respiratory, peptides, and innovative medicines.
New US policy proposals, especially the CMS “most favoured nation” pricing model, need close monitoring as they could affect pharma companies’ future strategies. The idea behind this policy is to bring US drug prices closer to the lower prices seen in other developed countries. Because of this pressure, by late 2025, several large pharma companies had already agreed to voluntary price cuts on some expensive medicines to avoid stricter government action.
Inventory destocking across Indian pharma CDMO players is primarily driven by cautious inventory management by global innovator and biotech clients following the post-COVID normalisation cycle. śDuring the pandemic, customers had built up excess inventory buffers, but with demand visibility softening and U.S. biopharma funding becoming uneven in FY25 - FY26, they have been deliberately reducing channel inventory to conserve cash and optimise working capital.
Indian pharma companies are increasingly facing pricing pressure due to aggressive active pharmaceutical ingredient (API) exports from Chinese manufacturers, who often benefit from large-scale capacities, lower energy costs and government-linked ecosystem advantages. This has led to periodic price undercutting in key molecules, making it difficult for Indian API producers to maintain margins and capacity utilisation, especially in commoditised products. While companies like Divi’s Laboratories noted raw material availability remains stable for now, management remains cautious about external developments, such as China’s policy moves, that could create selective pricing pressure over time, keeping the competitive intensity elevated for Indian players.
Labour costs are likely to move higher for Indian pharmaceutical companies following the rollout of the new wage code. The revised rules broaden what counts as wages, which, in turn, increases employer contributions towards gratuity, provident fund and other employee benefits. This impact has already started showing up in company accounts. For instance, Divi’s Laboratories reported a one-time employee benefit charge, while Cipla also flagged a wage code-related impact in Q3 FY26. As a result, employee costs could remain under pressure, particularly for manufacturing heavy pharma and CDMO players.
SEBI Registered Research Analyst (INH000006396).
Founded in 1986, Dalal Street Investment Journal (DSIJ) brings decades of experience in India’s equity markets. DSIJ's research combines fundamental analysis with price action, guided by disciplined risk management and capital preservation. They follow a structured, data-driven approach designed to help investors and traders make informed decisions beyond short-term market noise.
Disclaimer :
Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Content Partner - Dalal Street Investment Journal Wealth Advisory Private Limited
This article is for educational purposes only and should not be considered investment advice. Market investments are subject to risks. DSIJ Wealth Advisory Private Limited is a SEBI-registered Research Analyst (Reg. No: INH000006396) and Investment Adviser (Reg. No: INA000001142). Please consult your financial adviser before investing.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
