India's pharmaceutical sector continues to face a stark contrast between traditional generics and emerging high-value products, according to NITI Aayog's latest quarterly Trade Watch report. While the country exported ₹1.8 lakh crore worth of retail medicaments and formulated drugs in 2025, representing a 4% share of global demand, its exports of blood products, vaccines and immunologicals were significantly lower at ₹19,000 crore, accounting for only 0.6% of global demand. This performance gap highlights the sector's struggle to transition from volume-driven generic formulations to complex, high-barrier biotech products. India maintains its position as the world's largest supplier of generic drugs, accounting for about 20% of global supply, providing 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.
A critical barrier to innovation lies in significantly lower research and development spending by Indian pharmaceutical firms, which invest around 7% of net sales compared to 15-20% for global companies. As per NITI Aayog's report, drug discovery is a long-gestation, high-risk business with new products often taking 10 to 15 years to develop. The report emphasizes the need for sustained investments in R&D, biologics manufacturing, patent reforms, and stronger industry-academia collaboration. Gross expenditure on R&D in India has stagnated at 0.6-0.7% of GDP, with the private sector accounting for only about 36% of total R&D spending, far below the roughly 70% seen in advanced economies. This indicates that innovation remains less firm-driven and more dependent on public institutions.
India's reliance on imported raw materials and intermediates, especially from China, continues to constrain its ability to move up the value chain. According to the report, API imports were valued at ₹64,000 crore in 2025, with the top five product categories accounting for 84% of that total. China supplied 66-86% of several key API categories, including antibiotics and nitrogen heterocyclic compounds. This dependence matters significantly because high-value drugs often require sophisticated intermediates, fermentation-based inputs and specialized biotechnology materials that India still imports in large volumes. The report identifies this as a key challenge in developing the specialized industrial clusters and agile regulatory frameworks needed to compete with countries like Switzerland and Germany in patented drugs and biologics.
Indian drug exports face substantial regulatory and market access challenges that increase compliance costs and delay market entry. As per NITI Aayog's analysis, Indian drug exports encounter lengthy product registration processes, duplicative inspections, and limited recognition of foreign regulatory approvals. The report highlights weak industry-academia links, slow patent approval timelines and limited technology transfer as additional hurdles that have held back commercialization of research. Despite these challenges, government schemes like the production-linked incentive programme for pharmaceuticals, bulk drug parks and the PRIP innovation scheme are steps in the right direction. However, India will need bigger and longer-term bets on research, biologics manufacturing, patent reforms and domestic API capacity to move beyond its current model of low-cost generics.
Despite the broader sector challenges, biosimilars represent a significant billion-dollar opportunity for Indian companies, with early investors positioned to benefit most over the coming years. According to Manchanda's analysis, Biocon is expected to remain an early beneficiary due to its long-standing presence in this space, with the next two years expected to be very strong for it. He also identified Dr Reddy's and Lupin as strong contenders, stating that these companies have a solid pipeline and over a four to five-year horizon, they could build a biosimilars business of USD 0.5 billion to USD 1 billion. These companies could potentially generate between ₹5,000-10,000 crore in biosimilar revenue over a four to five-year horizon. The next two years are expected to be very strong for Biocon, while Dr Reddy's and Lupin should emerge as the next major players as their pipelines mature over the next three to four years.
Innovation remains a promising long-term opportunity, with Sun Pharma having built a significant platform and Wockhardt entering the journey with an antibiotic molecule for commercialization in the US and globally. Zydus is also on an innovation journey and expects to launch its first NCE in the US around the end of this financial year or early next year. On the contract development and manufacturing front, larger companies like Divi's, Laurus, and Neuland are better positioned, while Piramal Pharma also represents a significant name in the category. However, building meaningful innovation businesses requires sustained investment before profits reflect in base earnings. Scale will remain a key differentiator in the CDMO space, with larger companies like Divi's, Laurus, and Neuland better poised in the race. The CDMO landscape has shifted, with biopharmaceutical companies no longer asking simply 'How much can you make?' but rather 'How reliably can you solve my hardest problems?' Partners must pivot seamlessly between early-stage clinical runs and commercial-scale production, adapting to volatile demand while maintaining zero-defect manufacturing.
