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Informist, Monday, Aug. 3, 2026

 

By Gunjan Rajput

 

NEW DELHI – Indian pharmaceutical companies are unlikely to announce fresh investments or alter manufacturing strategies in response to US President Donald Trump's proposal to impose steep tariffs on imported generic medicines. According to analysts and company officials, the industry is adopting a wait-and-watch approach until there is greater clarity on the policy's implementation, product coverage, and legal framework.

 

On Jul. 21, Trump announced the proposal in a post on Truth Social, saying imported generic drugs would continue to attract a zero tariff for two years from Aug. 1. Beginning Aug. 1, 2028, they would face a 100% tariff for one year, followed by a 200% tariff from Aug. 1, 2029. The proposal is aimed at encouraging drugmakers to relocate manufacturing to the US by giving companies a two-year window to establish local production.

 

Analysts said the proposed tariffs, scheduled to begin in August 2028, have not triggered any meaningful capital expenditure announcements or manufacturing relocation plans, as companies continue to assess how the policy could eventually evolve.

 

"At present, none of the major Indian pharma companies have announced fresh greenfield manufacturing facilities or acquisitions in the US specifically in response to the proposed tariff framework," said Sugandha Sachdeva, founder of SS WealthStreet - a research firm registered with SEBI. "Companies are likely to adopt a wait-and-watch approach until greater clarity emerges on the final tariff structure and implementation details," she said.

 

The cautious stance is also evident in management commentary during the June-quarter earnings season. Dr. Reddy's Laboratories Ltd. said it has no plans to alter its manufacturing or investment strategy until there is greater clarity from US authorities. "We literally see how the situation will evolve because we've been there in those cycles in the past. It is not practical to move operations like that to the United States," the company's management said during its post-earnings analyst call on Jul. 22. "And obviously, if tariff will be imposed, we'll have to raise the price in the United States."

 

Cipla Ltd. also ruled out any immediate change of plans related to US investments, saying the tariff proposal remains an evolving policy issue. The company said around 35-40% of its manufacturing for the US market is already located in the US, providing some flexibility, but added that relocating additional production would take years and it would wait for greater clarity before taking major investment decisions. Ajanta Pharma Ltd., while maintaining its guidance for mid-to-high single-digit US growth this financial year, said it was "monitoring evolving US generic drug tariff policy."

 

The industry's response broadly mirrors Kotak Securities Ltd.'s assessment that the proposed 100% tariff from August 2028, increasing to 200% a year later, appears "nearly impossible" to implement in its current form and is primarily intended to encourage pharmaceutical manufacturing within the US rather than serve as a final policy blueprint. Kotak had put forward these views in a report on Jul. 22. Kotak said companies with existing US manufacturing capabilities, including Cipla, Sun Pharmaceutical Industries Ltd., Aurobindo Pharma Ltd., and Lupin Ltd., are relatively better positioned under the proposed framework because they already have manufacturing capacity or expansion plans in the US. However, the brokerage's analysis showed companies with higher dependence on US generic exports, particularly Biocon Ltd., Aurobindo Pharma Ltd., and Dr Reddy's Laboratories, could face the greatest earnings sensitivity if tariffs are implemented without meaningful benefit from higher pricing. It also said companies with weaker pricing power may be forced to rationalise low-margin products, should reimbursement rates remain unchanged.

 

Sachdeva said relocating pharmaceutical manufacturing is "far more complex than it appears", as Indian drugmakers depend on deeply integrated supply chains spanning India and China for active pharmaceutical ingredients, intermediates, and key starting materials. She estimated that establishing meaningful manufacturing capacity in the US would take four to seven years, requiring significant capital expenditure, supplier ecosystems, skilled manpower, and regulatory approvals, making large-scale relocation difficult before the proposed implementation timeline. She also questioned whether Indian manufacturers could absorb tariffs given the economics of the US generic drug market. "Unbranded generics account for nearly 90% of prescription volumes but less than 25% of prescription drug spending by value," she said. "Years of persistent price erosion have already compressed margins across the industry, making it difficult for companies to absorb a tariff of 100% or more." Instead, she said the US generic pricing framework, including Maximum Allowable Cost reimbursement rates, would likely need to be revised upwards. "Without a proportionate increase in reimbursement rates, several manufacturers may find certain products commercially unviable, potentially leading to product exits, and supply shortages in the US generic drug market," she said.

 

Sachdeva noted that Indian companies currently supply nearly 35% of all generic medicines consumed in the US, making them an integral part of the country's healthcare system. "A steep tariff without corresponding price adjustments could significantly disrupt drug availability and increase healthcare costs for US consumers," she said.

 

Niharika Agarwal, research analyst at Nirmal Bang Institutional Equities, said it remained premature to revise earnings expectations because several aspects of the proposal remain uncertain. "There are significant uncertainties around the legal pathway, product scope, exemptions, and whether the proposal ultimately gets implemented in its current form," Agarwal said. "From an investment standpoint, however, I think it is still premature to quantify the earnings or valuation impact. For now, we view this more as an evolving policy risk than a change that warrants resetting long-term forecasts."

 

She said companies with existing US manufacturing facilities or the ability to localise parts of their supply chain would be relatively better placed if the proposal is eventually implemented, while pure exporters of low-cost generic medicines would remain more exposed.

 

Over the medium term, Sachdeva expects Indian pharmaceutical companies to diversify revenue streams by strengthening their presence in Europe, emerging markets, and other regulated regions while continuing to engage with US policymakers through industry bodies.

 

For now, however, analysts and company management appear aligned that the proposed tariffs represent a long-term strategic issue rather than an immediate operational challenge, with companies preferring to preserve capital and maintain manufacturing flexibility until Washington provides greater clarity on the final policy framework.  End

 

Edited by Akul Nishant Akhoury

 

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