Proposed tariffs on imported generic pharmaceuticals by US are unlikely to have any immediate negative credit impact on Indian pharmaceuticals companies, although they could accelerate consolidation across the industry by putting smaller manufacturers under pressure, according to India Ratings and Research (Ind-Ra).
The rating agency said India's entrenched position in the US generic pharmaceutical supply chain, its significant manufacturing cost advantage, its large network of US food and drug administration (US FDA)-approved facilities and the proposed two-year implementation timeline would provide meaningful protection against the proposed tariff measures.
It said, while tariffs could increase costs and compress profitability across the value chain, Indian companies are expected to mitigate the impact through pricing actions, commercial negotiations, manufacturing optimisation, strategic partnerships and product diversification.
"Our view remains neutral. With any tariff impact at least two years away and India-US trade discussions still evolving, we see no immediate negative implications for Indian pharma exporters. The eventual outcome will likely depend on bilateral negotiations and the practical feasibility of reshoring generic drug manufacturing to the US," said Krishnanath Munde, associate director, corporates at Ind-Ra.
The rating agency said the ultimate impact would depend on the final tariff structure and the outcome of ongoing India-US trade negotiations.
India's Structural Strengths Remain Intact
Ind-Ra said India's structural advantages are expected to preserve its strategic importance in the US generics market, despite the proposed tariffs. The uncertainty over implementation could also discourage new entrants and help moderate price erosion in the US generics market.
India currently accounts for 35%-40% of abbreviated new drug application (ANDA) approvals, nearly 50% of drug master files and hosts the largest concentration of US FDA-approved manufacturing facilities outside the US.
The report said the US contributes about 35% of the Indian pharmaceuticals industry's revenue, with leading US-focused Indian drug-makers generating nearly US$11bn (billion) in sales during FY25-26. Indian manufacturers also account for nearly 47% of generic prescriptions dispensed in the US, while manufacturing costs in India remain only 25%-30% of comparable US production costs, reinforcing the country's importance in ensuring affordable healthcare in the US.
Large-scale Manufacturing Shift Unlikely
According to Ind-Ra, the proposed tariff framework is unlikely to trigger a meaningful relocation of generic drug manufacturing from India to the US.
The agency said significantly higher labour, infrastructure and operating costs in the US, coupled with intense pricing pressure and structurally thin margins in the generic pharmaceuticals business, make large-scale manufacturing relocation economically unattractive.
Under the proposed framework, a 100% tariff would take effect from August 2028, rising to 200% from August 2029, with a two-year transition period.
Given this timeline, Indian pharmaceuticals companies are expected to continue using India as their principal manufacturing base while retaining the US primarily for market access, research & development (R&D) activities and specialised manufacturing.
Ind-Ra expects companies to manage tariff-related pressures through commercial negotiations with importers, selective pass-through of costs depending on market competition and targeted investments in specialised manufacturing capabilities in the US wherever commercially viable.
The report also said that, given the thin margins in generic medicines, manufacturers are unlikely to absorb the entire tariff burden, making it likely that part of the additional cost will eventually be passed on to distributors, healthcare-providers and consumers in US.
Smaller Companies May Face Greater Challenges
The rating agency believes the proposed tariff regime could accelerate consolidation within the Indian generic pharmaceutical industry.
Smaller manufacturers with weaker balance sheets, limited pricing flexibility and narrow product portfolios are expected to face greater challenges in remaining competitive, particularly if significant investments in US manufacturing become necessary.
This environment could create opportunities for mergers, acquisitions and strategic partnerships. Distressed generic assets may become attractive acquisition targets, while Indian pharmaceuticals companies could increasingly collaborate with US contract manufacturing organisations to establish domestic production capabilities in a more capital-efficient manner.
Diversification To Strengthen Resilience
Ind-Ra said Indian pharmaceuticals companies are already reducing dependence on the US generics market by expanding into Europe, emerging markets and strengthening domestic operations.
The industry is also shifting towards higher-value segments such as complex generics, biosimilars, branded products, speciality formulations and niche therapies which generally offer better margins and lower exposure to price competition.
The domestic pharmaceuticals market, which accounts for about 41% of industry sales, remains an attractive growth opportunity due to favourable profitability, lower capital expenditure requirements, and an expected annual growth rate of 8%-10%.
The agency expects companies to strengthen their domestic businesses while pursuing mergers and acquisitions to broaden product portfolios and expand market reach.
Fewer Competitors Could Support Pricing
Ind-Ra said the proposed tariffs could act as a barrier to entry, leading to greater market concentration among established, financially stronger pharmaceuticals companies.
Such consolidation may support the gradual improvement already visible in US generic drug pricing, where price erosion has moderated compared with historical levels.
The report added that fewer new entrants and a more concentrated competitive landscape could improve industry pricing dynamics over the medium term, particularly for companies with diversified product portfolios, large scale and strong regulatory compliance records.
Supply Chain Flexibility To Become Crucial
The agency said significant uncertainty remains over the final design and implementation of the proposed tariff regime, especially as India and the US continue bilateral trade negotiations.
If the final tariff framework differentiates between countries, Indian pharmaceuticals manufacturers may increasingly leverage overseas manufacturing facilities, strategic alliances and alternative production locations to preserve access to the US market.
According to Ind-Ra, companies with diversified international manufacturing networks and greater operational flexibility are likely to enjoy a competitive advantage if global pharmaceuticals supply chains are reshaped by the proposed tariff regime.
