India’s pharmaceutical industry is a significant global player. It produces about 20% of the world’s generic drugs by volume and has supported major vaccine efforts, providing affordable medicine worldwide.

These results are real and contribute to India’s sense of self-sufficiency. However, the industry shows significant vulnerability beneath the surface.

A June 2026 NITI Aayog government think-tank report highlights issues with the government’s self-reliance ambitions. The report finds that India’s export strength hides a structural reliance on Chinese raw materials for the pharmaceutical sector.

The report dissects a dangerously anemic supply chain. For all its manufacturing might, India’s industry is a giant with feet of clay. It is reliant on China for over 65% of its key starting materials (KSM) and active pharmaceutical ingredients (APIs) — the chemical heart of any medicine, according to NITI Aayog’s Trade Watch Quarterly.

This dependency exceeds 85% for entire classes of life-saving drugs, including antibiotics and fever reducers. This is not an equal partnership — it is a tenuous pipeline. A single geopolitical tremor, trade dispute or new lockdown at a Chinese port could choke off these critical supply lines.

This could quickly lead to a public health crisis for India and other developing nations that depend on it for affordable drugs. India’s “Pharmacy of the World” title now requires a clear Made in China warning.

This dependence challenges the Narendra Modi government’s “Made in India” economic nationalism. Although its policies promote local manufacturing, the industry’s supply chain remains closely tied to China.

The NITI Aayog report illustrates the difference between government statements and actual industry dependence. The question remains: how did a leading sector grow so reliant on imports?

To be sure, China’s industrial dominance is a common challenge in emerging economies. India is highly productive but not always profitable. India supplies about 60% of global vaccine doses — six out of every ten — earning it global recognition.

But this numerical dominance collapses when measured in actual dollars. India’s share of the global vaccine market by value is a negligible 0.6%.

It provides the world with the bulk of its immunity but captures less than a penny for every dollar of revenue. The Indian economy is essentially donating its manufacturing heft. This is a charitable act of industrial policy, as unsustainable as it is generous.

Ashok Kumar Lahiri, vice chairman of NITI Aayog, has said the sector needs to “move up the value chain.” India’s industry works hard but fails to achieve commensurate economic benefits.

The challenge is compounded as the global pharmaceutical industry advances into high-margin areas such as biologics, cell and gene therapies, and immunologics.

India’s industry, by contrast, remains trapped in the low-cost, generic pill model. This is a crucial but thankless business with razor-thin margins. The reason for this innovation gap is no mystery. It is a story of underinvestment, bureaucratic inertia and regulatory overreach. Together, they have conspired to starve the sector of its creative oxygen.

Top international pharma companies typically invest 15%-20% of their revenues in research and development — a commitment that can require billions of dollars and a decade to yield a single drug.

Various studies, including a recent analysis by NITI Aayog, have estimated that Indian companies invest around 7%. It is not just a matter of culture but of survival.

India’s patent approval process is slow and complex, discouraging inventors and investors and making long-term innovation less attractive. These challenges, in turn, may lead companies to prefer copying drugs rather than developing new ones.

Environmental regulations that should encourage responsible stewardship have instead become a straitjacket of red tape. Stringent rules, such as the Zero Liquid Discharge (ZLD) mandate, while noble in intent, have massively inflated production costs.

These costs hit particularly hard for the small and medium enterprises that form the backbone of the API sector. In some R&D operations, between 35% and 40% of expenses are now allocated not to science but to managing wastewater and navigating environmental approvals.

The rational choice for a factory owner is painfully clear: stop making the ingredient domestically and import a cheaper, regulation-free version from China.

As a result, environmental regulations have led to increased imports and greater dependence on China, rather than fostering domestic resilience. This domestic policy failure is compounded by a foreign policy that has sometimes prioritized geopolitics over economic sense.

Since the 2020 border tensions with China, India has enthusiastically embraced the West’s “China plus one” and “decoupling” strategies. It has tightened restrictions on Chinese investment and technology transfer, a move framed as a step toward strength. Yet, as the NITI Aayog report implicitly shows, this has not reduced dependence; it has merely made it more opaque.

Western capitals, while cheering on India’s posture, have continued to aggressively pursue their own trade and investment deals with China, securing their supply chains, while India’s remain vulnerable. India has grown increasingly reliant on China’s supply chains yet lacks the diplomatic ties needed to address and manage crises.

To address these challenges, India needs realistic strategies that prioritize national interests over political rhetoric.

Viewing China solely as an adversary carries concrete commercial risks. The first is a drug shortage. Disruption in API supplies would raise costs and limit access, especially for poorer populations.

The second is a long-term technological divide. China is no longer just a manufacturer; it has become a world leader in digital infrastructure, renewable energy and advanced manufacturing technologies. To cut India off from this whole system would set back its industrial development by decades.

True self-reliance requires consistent investment in R&D, an efficient patent process and effective but manageable environmental rules. Until India solves these and various other problems, “Made in India” will remain dependent on “Made in China.”

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