An Indian Pharma Manufacturer's Take On War-Led Supply Crisis

Domestic manufacturers should brace for a higher escalation in costs as Russia's war in Ukraine worsens global supply disruption, according to one of India's top makers pharma ingredients and specialty chemicals.

Sanjay Chaturvedi, chief executive officer at IOL Chemicals and Pharmaceuticals Ltd., cited the world's largest chemical maker BASF SE's estimate that the disruption caused by Russian invasion will impact as much as 50% of its production. “India is somewhat insulated from this (war) as we don’t get our energy directly from Russia," he said in an interview with BloombergQuint's Niraj Shah. "But if a big company like BASF suffers, the rest of the world will also sneeze.”

The conflict has led to three types of disruptions in India: raw material supply, shipping disruption that impacts logistics and supply chain networks, and energy disruption as costs have of gas, fuel and coal have risen, he said. “Coal is hardly available right now to the industry,” he said.

The war will hurt Indian companies that use imported raw materials, he said. And local firms sourcing supplies from Europe will feel a direct impact as Europe relies on Russia for its energy needs, he said. “If input prices go up, the price of manufacturing will most certainly go up, and it will have to be passed along to customers.”

Companies that have strong balance sheets and adequate stock of raw materials “at previous prices” won't be cushioned, he said. But those relying on a weekly or bi-weekly ordering would face a challenge, he said.

Bulk Drug PLI Scheme Is A Positive Step

During the first production-linked incentive scheme, there was a “feeble response”, said Chaturvedi as the products selected were “not just a manufacturing game, but (rather) technology coupled with a manufacturing game”.

“Indian players did not have the technology, and therefore could not scale up the manufacturing," he said. "Also, a lot of them were fermentation-based APIs (active pharmaceutical ingredients), which continue to be imported.”

The current PLI scheme is positive as the government has taken steps like revising prices for certain drugs to aid manufacturing, he said. Had the pricing caps not eased, there would have been tremendous pressure on API manufacturers, given rising input costs, he said. "Many small to mid-sector enterprises would have been in deep trouble; this would have again led to low participation (in the PLI scheme).”

Chaturvedi expects the API industry to grow because the last two quarters weren't “particularly healthy” and the industry has bottomed out. “Now, the only way forward is for the industry to come back to a more normal performance level.”

Watch the full conversation here: