Petrochemical Reliance Hits Drug Supply
The escalating conflict in West Asia has disrupted India's pharmaceutical sector, highlighting a deep reliance on petrochemical feedstocks. Pharmexcil, the Pharmaceuticals Export Promotion Council of India, has urgently called upon the government to allocate crucial raw materials – propylene, methanol, ammonia, and butane – as inventories at solvent and API makers are critically low. This import reliance, especially for petrochemicals used in APIs and excipients, reveals a long-hidden systemic risk. India relies on the Middle East for much of its naphtha and LPG. The Strait of Hormuz, a critical chokepoint, handles 20-25% of global oil and LNG, vital for these petrochemicals. Disruptions mean soaring input costs, with Brent crude reaching $103.61 per barrel on March 24, 2026, due to significant supply concerns. This tension directly threatens the chemical supply chain, affecting everything from raw material production to final packaging.
Fragile API Supply Chain Exposed
The current crisis highlights India's significant reliance on imports for APIs and their precursors. China has historically been the dominant supplier, accounting for 73.7% of India's API and intermediate imports in FY2024-25. India has strong domestic capabilities, but the lower cost of Chinese APIs created a vulnerability, seen during COVID-19. Paracetamol API prices have surged from around ₹250-₹270 per kg to ₹650 per kg, showing the intense cost inflation manufacturers face. Manufacturing costs for essential drugs could rise 20-30%, with API makers seeing power costs alone up 25%. Shipping costs have nearly doubled, adding pressure. This impacts essential medicines like antibiotics, antidiabetics, and cardiovascular drugs, which rely on petrochemical-based APIs.
Small Drug Makers Face Squeeze
The crisis is hitting India's small and medium-sized drug makers (MSMEs) hardest. Larger, financially strong companies like Dr. Reddy's Laboratories or Divi's Laboratories may absorb cost increases, but smaller manufacturers face serious threats. Government price caps on essential drugs prevent them from passing rising costs to consumers. This severely squeezes margins, potentially forcing nearly 200 small manufacturers to halt production if supplies run out. The gap between soaring input costs and fixed retail prices is unsustainable, risking the sector's 'pharmacy of the world' status. Government initiatives like Production Linked Incentive (PLI) schemes and bulk drug parks aim for long-term self-sufficiency but offer little immediate help for firms facing current supply shocks.
Deep-Seated Risks in Supply Chain
The geopolitical turmoil highlights structural flaws in India's strategy. Despite self-reliance efforts, the country remains heavily reliant on imported petrochemical feedstocks and APIs. Reliance on few suppliers, like China for APIs and the Middle East for petrochemicals, creates systemic risk amplified by geopolitical instability. Industry groups are lobbying for subsidies, but core diversification remains a long-term challenge. The debate continues on whether this will cause inflation and selective shortages or a full breakdown, with some analysts favoring the former. For businesses facing immediate cost pressures and production halts, the reality is dire. This situation demands faster supply chain diversification and a review of pricing policies to handle volatile input costs.
Path to Resilience
The Indian government may divert petrochemical supplies to solvent manufacturers to ease the immediate crisis. However, the long-term solution requires supply chain diversification and increased domestic production of chemical intermediates, efforts already underway with PLI schemes and bulk drug parks. These are mid-to-long-term solutions, but the immediate crisis needs swift government action. Future resilience depends on reducing import dependence, insulating from geopolitical volatility, and adapting business models to fluctuating global prices. Failure to address these weaknesses could significantly undermine India's competitive edge and its global healthcare role.