Why Indian pharma isn't scared of a 100% tariff (yet)

**Rachel Varghese** (0:01)
Last week, on Tuesday, US President Donald Trump made an announcement. He said that tariffs on generic medications imported into the US would eventually hit 100 percent. And by Wednesday, Indian pharma stocks were already reacting. Bloomberg reported that the NSE Nifty Pharma Index fell by more than 1 percent. Sun Pharma, one of the sector giants that sells household names like Walloney, the pain relief spray or gel, fell by nearly 1 percent. Even Cipla, which makes the other popular pain medication, Omni-gel, and cold meds like Chest and Gold saw its own shares fall by almost 2 percent. But here's the part that might surprise you. This tariff doesn't actually take effect for two more years. So why is the market panicking already? Well, part of the reason is this. CNBC reports that these tariffs are expected to hit Indian pharma companies especially hard, because they supply nearly 50 percent of all generic medicines consumed in America.
Not just that. According to market estimates reported by Outlook Business, India exports close to 8 to 9 billion dollars worth of pharmaceutical products to the US every year, and the vast majority of it is genetics. Now, the idea behind the tariff, as Trump wrote in his Truth Social post, was to re-show generic pharmaceutical production into America. So, the domestic supplies for life-saving medications could be secured within the country in the case of any global supply chain disruptions. Now, this new announcement is part of a larger push from the US government to bolster American national security and public health. In April this year, Trump had already announced a 100% tariff on patented pharma ingredients. In the fact sheet released by the White House at the time, genetics had been exempted. Mainly because, genetics account for 90% of all prescriptions in the US, which means that these are what the average American patient relies on. Still, like I mentioned earlier, the tariff isn't immediate. In fact, countries like India get a two-year window before a 100% tariff kicks in on August 1st of 2028 And then, if they haven't shifted some of the manufacturing to the US by 2028, then a 200% tariff will take effect in 2029 The two-year buffer was given to generic makers exactly so that they could start making that shift. Now, the Trump administration is saying that this protects Americans. But Indian companies are already saying that two-year timeline for shifting manufacturing seems unlikely. And even though the Indian stock markets are down right now, the ones footing the final bill for Trump's protection may not be who he thinks.
Welcome to Daybreak, a business podcast from The Ken. I'm your host, Rachel Varghese, and every day of the week, my co-host Snigdha Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Wednesday, the 29th of July.
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To put it simply, consumers are the ones who are most likely to pick up the tab for the extra costs taken on by pharma companies when and if the tax takes effect. The CEO of Dr. Reddy's labs, Erez Isreali, pretty much said it himself. He told ET that if tariffs are imposed, the company would have to raise prices in the US. He explained that making the drugs in the US would still mean higher costs, leading eventually to inflation for both insurers and retailers. Arpit Chaturvedi, the South Asia advisor at Tenio, a global advisory firm, told CNBC that most ordinary generics already operate with razor thin margins, which means some manufacturers may end up exiting specific products entirely if wholesalers refuse to absorb the cost or pass it through, making the particular products no longer commercially viable for companies.
This would most likely have a two-fold effect. Even as prices for the cheap generics rise, the supply will decrease, and eventually that decrease would feed into the price hike. Now, here are a few numbers that will put that into perspective. Namit Joshi, the Chairman of Pharmaxil, or the Pharmaceuticals Export Promotion Council of India, told Business Standard that the generics that account for 90% of prescriptions in the US contribute only to 13% of drug spending. So even though generics make the bulk of prescriptions, their eventual costs run much cheaper than the patented stuff that make up the rest of them.