India Pharmacy of World: 70% API Dependence on China Risks EU Drug Supply

India, widely known as the 'pharmacy of the world,' supplies over 50% of the medicines used in the Netherlands and nearly 20% of global generic drug demand. However, a new analysis reveals a critical vulnerability: more than 70% of the active pharmaceutical ingredients (APIs) used by Indian manufacturers are imported from China. This heavy reliance on Chinese raw materials poses a direct threat to European drug supply chains, as any disruption in Chinese exports could quickly trigger shortages in Dutch and EU pharmacies.

India's Pharmaceutical Dominance and Hidden Weakness

India's pharmaceutical industry is the third largest in the world by volume, valued at approximately $50 billion in FY 2023-24. The country produces over 60,000 generic drugs across 60 therapeutic categories and supplies 40% of generic demand in the United States and 25% of all medicines in the United Kingdom. India is also the world's largest vaccine manufacturer, accounting for over 60% of global vaccine production.

Yet this impressive output masks a deep structural weakness. According to a December 2025 analysis by the Observer Research Foundation (ORF), India's API and intermediate imports from China surged from $0.29 billion in 2001 to $11.1 billion in 2024 — a near forty-fold increase. China now supplies roughly 70% of India's bulk drug imports. For certain critical antibiotics like erythromycin, China's share reaches 97.7%. The EU pharmaceutical supply chain is thus indirectly but heavily exposed to Chinese export policies.

Why India Became Dependent on Chinese Raw Materials

The roots of this dependence stretch back two decades. Indian pharmaceutical companies shifted to importing cheaper APIs and key starting materials (KSMs) from China, which offered significant cost advantages through state subsidies and economies of scale. Domestic API production in India was gradually hollowed out. By the mid-2010s, India's indigenous API industry had largely collapsed for many critical molecules.

The COVID-19 pandemic exposed this fragility dramatically. When Chinese factories shut down in early 2020, India faced acute shortages of essential medicines and was forced to restrict exports of 26 drugs. The crisis served as a wake-up call, prompting the Indian government to launch the Production Linked Incentive (PLI) Scheme for Bulk Drugs in 2020, with a total financial outlay of ₹6,940 crore ($830 million).

PLI Scheme Progress: Early Results

As of December 2025, the PLI scheme has shown measurable but limited progress. According to a March 2026 press release from India's Ministry of Chemicals and Fertilizers, 38 out of 48 approved greenfield projects covering 28 critical products have been commissioned, establishing a domestic manufacturing capacity of approximately 56,800 metric tonnes per annum. Cumulative sales of ₹2,720 crore ($326 million) have been reported, including exports of ₹527.96 crore ($63 million), and imports worth ₹2,192.04 crore ($263 million) have been avoided. The scheme has created 4,896 jobs.

However, India's overall API import dependence by value actually rose from 68% in FY2020 to nearly 72% in FY2024, with imports from China growing 30% between 2021 and 2024. The government has identified 41 products for domestic production under the PLI scheme, but over 40 APIs still show 70-100% import dependence from China, according to data tabled in the Lok Sabha in July 2025.

Geopolitical Risks and Middle East Instability

The risk is not merely theoretical. In April 2025, unrest in the Middle East disrupted trade routes to China, causing the prices of medical raw materials to spike 20-30% temporarily. Several Indian producers reported shrinking inventories until supply chains stabilized. As the ORF analysis notes, despite border tensions and pandemic-era disruptions, trade flows between India and China have not structurally decoupled.

China has previously shown willingness to use export restrictions as a geopolitical tool. In April 2025, Beijing restricted exports of rare earth metals — critical for electric vehicles and wind turbines. Similar China export restrictions on pharmaceuticals could have immediate consequences for drug supplies in Europe.

Impact on the Netherlands and European Union

The Netherlands is particularly exposed. India supplies over 50% of the medicines used in Dutch pharmacies, including common drugs like paracetamol, ibuprofen, and penicillin. The Dutch healthcare system, like many in Europe, relies on just-in-time supply chains with minimal buffer stocks. Any disruption in Indian production due to Chinese API shortages would be felt within weeks.

Former U.S. President Donald Trump's 2025 tariff of 100% on brand-name medicines — from which India was exempted because its industry focuses on generics — further underscores the complexity of global pharmaceutical trade. The EU already pays a 15% tariff on brand-name medicines under a trade agreement, but generic medicines from India face no such barrier, making Europe even more dependent on Indian supply.

Can India Reduce Its Dependence?

India's path to API self-sufficiency faces significant hurdles. The PLI scheme and three bulk drug parks under development in Andhra Pradesh, Gujarat, and Himachal Pradesh represent important steps. However, experts argue that meaningful localization will take years. Key barriers include:

• High capital costs: Modern fermentation-based API manufacturing requires investments of $100-200 million per facility.
• Regulatory delays: New facilities require lengthy approvals from agencies like the USFDA and European Medicines Agency.
• Scale disadvantage: Chinese manufacturers benefit from massive economies of scale and lower energy costs.
• SME reluctance: Small and medium enterprises hesitate to invest without sustained government commitment beyond the PLI scheme's 2028 timeline.

The India pharmaceutical self-sufficiency strategy is a long-term endeavor. As the ORF report concludes, "Despite border tensions and pandemic-era concerns, trade flows have not structurally decoupled. Indian industry continues leveraging China's cost advantage rather than reducing dependency."

Frequently Asked Questions

What percentage of India's pharmaceutical raw materials come from China?

India imports over 70% of its active pharmaceutical ingredients (APIs) from China. For certain critical antibiotics, this figure exceeds 90%.

Why is India called the 'pharmacy of the world'?

India supplies nearly 20% of global generic drug demand, over 50% of the world's vaccines, and 40% of U.S. generic prescriptions. It exports to more than 200 countries.

How much medicine does India supply to the Netherlands?

India supplies over 50% of all medicines used in the Netherlands, including common drugs like paracetamol, ibuprofen, and penicillin.

What is India doing to reduce dependence on Chinese APIs?

India launched the PLI Scheme for Bulk Drugs (₹6,940 crore outlay) in 2020, and as of December 2025, 38 projects covering 28 critical products have been commissioned, creating capacity of ~56,800 MT per annum.

Could Chinese export restrictions affect European patients?

Yes. Since over 70% of India's API needs come from China, any Chinese export restrictions would directly impact Indian drug production and, within weeks, cause shortages in European pharmacies.

Sources

• Observer Research Foundation (ORF) — 'India's Rise as Global Pharmacy Masks Deep Dependence on China' (December 2025)
• Press Information Bureau, Government of India — PLI Scheme for Bulk Drugs update (March 2026)
• Business Today — 'Domestic API production has begun, but imports still high' (July 2025)
• Wikipedia — Pharmaceutical industry in India
• BNR Nieuwsradio — 'India als apotheek van de wereld zwaar afhankelijk van Chinese grondstoffen' (July 2026)