The United States recently imposed a 27% reciprocal tariff on Indian exports but excluded the pharmaceutical sector from these duties. However, concerns remain that this exemption may be temporary. A report by HDFC Securities warns that Indian pharmaceutical products could be subjected to future tariffs under the Trade Expansion Act of 1962, which gives the US President the authority to alter trade tariffs. While the current decision alleviates immediate concerns regarding drug shortages and supply chain disruptions, the long-term outlook remains uncertain.
Indian pharmaceutical companies play a vital role in the US healthcare system, supplying nearly 40% of generic drugs imported into the country. In FY24, India’s pharmaceutical exports to the US were valued at approximately $8 billion, growing at an 8% compound annual growth rate over the past decade. Despite the temporary exemption, Indian pharmaceutical stocks have already seen a nearly 10% decline in the past three months due to fears of future levies. Analysts suggest that continued tariff exemptions would be crucial to maintaining steady exports and avoiding disruptions in trade.
If the US were to impose tariffs on Indian pharmaceutical products, both nations could face negative consequences. The US heavily relies on affordable Indian generics to keep healthcare costs in check, and additional duties could drive up drug prices, worsening healthcare inflation. On the other hand, Indian pharma companies, which operate on thin margins, may struggle to absorb these costs, potentially leading to drug shortages and financial strain. Given the industry’s significance in providing cost-effective medicines, any future trade barriers could disrupt the existing balance, impacting both US consumers and Indian exporters.
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