Why India is struggling to move from cheap generics to cutting-edge drugs

India has built its reputation as the “pharmacy of the world” by supplying cheap generic medicines to more than 200 countries, but a new government report shows why the country is finding it harder to break into the faster-growing business of cutting-edge drugs.

NITI Aayog, in its latest quarterly Trade Watch report, said India’s pharmaceutical sector remains heavily tilted toward “volume-driven generic formulations over complex, high-barrier biotech products.”

India is the world’s largest supplier of generic drugs, accounting for about 20% of global supply.

It provides nearly 40% of generic demand in the United States, over 50% of Africa’s generics requirement and around a quarter of medicines used in Britain, according to the report.

That strength, however, has not translated into a comparable presence in newer, more research-intensive products.

The report said India exported $22.6 billion worth of retail medicaments and formulated drugs in 2025, giving it a 4% share of global demand in that segment.

Its exports of blood products, vaccines and immunologicals - one of the fastest-growing categories in world trade - were only $2.2 billion, or 0.6% of global demand.

While the country has built a foothold in some specialised chemical intermediates and antibiotics, it has almost no presence in the biggest global API growth area: Hormones and Analogues.

Hormones and Analogues account for 37.5% of global API demand, with global imports reaching $97.8 bn in 2025, while India’s share in global imports remains at 0.3%.

The report points to several reasons.

First, Indian drugmakers spend far less on research than their global rivals.

R&D spending by Indian pharmaceutical firms is around 7% of net sales, compared with 15% to 20% for global companies. Drug discovery is a long-gestation, high-risk business, with new products often taking 10 to 15 years to develop.

“There is a need for long-term incentives and funding mechanisms to develop new products and technologies,” the report said.

Second, India remains dependent on imported raw materials and intermediates, especially from China, even as it tries to move up the value chain.

API imports were valued at $7.4 billion in 2025, with the top five product categories accounting for 84% of that total. China supplied 66% to 86% of several key API categories, including antibiotics and nitrogen heterocyclic compounds.

That dependence matters because high-value drugs often need sophisticated intermediates, fermentation-based inputs and specialised biotechnology materials that India still imports in large volumes.

Third, the report says India lacks the kind of innovation ecosystem, specialised industrial clusters, and agile regulatory frameworks that helped countries such as Switzerland and Germany dominate patented drugs and biologics.

Gross expenditure on R&D in India has stagnated at 0.6% to 0.7% of GDP, and the private sector accounts for only about 36% of total R&D spending, far below the roughly 70% seen in advanced economies.

The gap indicates that innovation “remains less firm-driven and more dependent on public institutions.”

The report also flagged weak industry-academia links, slow patent approval timelines and limited technology transfer as hurdles that have held back commercialisation of research.

Market access is another problem. Indian drug exports face lengthy product registration processes, duplicative inspections, and limited recognition of foreign regulatory approvals that increase compliance costs and delay market entry.

According to the report, government schemes like the production-linked incentive programme for pharmaceuticals, bulk drug parks and the PRIP innovation scheme are steps in the right direction.

But India will need bigger and longer-term bets on research, biologics manufacturing, patent reforms and domestic API capacity if it wants to move beyond its current model of low-cost generics and become a serious player in the next generation of medicines.