Why is it in the news?

• India is set to restart Penicillin G manufacture by mid-2024 after a three-decade hiatus due to competitive pressures from cheaper Chinese imports and the recent emphasis on self-reliance spurred by the COVID-19 pandemic.

Reasons for the halt in Penicillin G manufacturing in India

• Cheaper Chinese products flooded the market due to subsidies, making it economically unviable for Indian manufacturers to compete. This resulted in the closure of the last Penicillin G plant in India, operated by Torrent Pharma in Ahmedabad.
• With relaxed customs rules and the opening up of the Indian economy in the 90s, many Indian pharmaceutical companies opted for cheaper imported products, contributing to the decline in domestic manufacturing.
• The Drug Prices Control Order, which capped prices of essential medicines, further incentivized companies to opt for cheaper imported products over domestically produced ones.

Factors contributing to the delay in restarting Penicillin G manufacturing

• Despite the decline in active pharmaceutical ingredient (API) production in India, there was little focus on restarting manufacturing domestically until the supply chain disruptions caused by the COVID-19 pandemic highlighted the need for self-reliance.
• Manufacturing APIs, particularly fermented ones like Penicillin G, involves significant capital expenditure. Companies may take several years to break even after setting up production facilities.
• China emerged as a major supplier of APIs over the past three decades, making it challenging for Indian manufacturers to compete on price without substantial investments in larger facilities.

Impact of the Production Linked Incentive (PLI) schemes

• The PLI scheme led to a decline in imports of APIs. For instance, imports of paracetamol API were halved following the launch of the scheme.
• Despite the decline in API imports, India still relies heavily on imports, particularly for antibiotics and other APIs. It will take time for domestic API manufacturing to ramp up to meet the country’s requirements.
• The PLI scheme provides incentives for both fermentation-based bulk drugs (such as antibiotics) and chemically synthesized drugs over a period of six years, aimed at promoting domestic manufacturing in these sectors.