Indian Pharmaceutical Industry (IPI) is facing challenging situation on both the domestic and international fronts. Pharma MSMEs are facing challenges on account of revised Schedule-M GMP norms which became a necessity due to recurring quality issues. Death of children due to contaminated cough syrups in October 2025 necessitated serious interventions. By early October 2025, majority of pharma MSMEs (3,838 in number) out of 5,308 drug manufacturing units complied with upgraded norms whereas 1,470 sought more time. Threat of protectionist measures in the USA has caused general anxiety in the pharmaceutical industry. The conclusion of negotiations for a Free Trade Agreement (FTA) between India and the European Union (EU) is a positive development for the industry as it unlocks access to the $572.3 Bn EU Pharmaceuticals and Medical Devices market.
Economic Survey 2025-26 mentioned the pharmaceutical sector as one among three sectors for which there was expansion of higher-value manufacturing exports along with diversification of export destinations. Not only that, pharmaceutical sector was the only sector that has shown positive YoY Growth (per cent) in Exports of Pharmaceuticals for November 2025 (to the USA as well as in Total), and for April-November 2025 (to the USA as well as in Total). Growth in exports of pharmaceuticals to the US during April-November FY26 over April-November FY25 was just 0.8 per cent which stood at 6.5 per cent for the World. Economic Survey highlighted that there was a decrease in India’s pharma exports to the USA by – 23.7 per cent YoY in October 2025 mainly due to uncertainty regarding tariffs on generic drugs. However, this trend got reversed in Nov. 2025, with pharma exports to the US increasing by 9.8 per cent YoY.
Economic Survey 2025-26 also underlined the fact that decline in exports to the US till October 2025 led Indian exporters to pre-emptively reduce their reliance on the US market, and focus on alternative destinations.
Economic Survey 2025-26 presented a case study of the pharmaceutical sector as an example of how the industry can reinvent itself in the face of global challenges and progress. For this, the shift from the process-patent regime of 1970 to the TRIPS-compliant product-patent regime was cited. Economic Survey acknowledged that Indian pharma companies began investing in formulation science, transitioning R&D from reverse-engineering, and industry-wide R&D spending grew from ₹1250 million in FY94 to nearly ₹209.8 billion by FY19. Besides this, market diversification through targeting regulated markets, Collaborative and Risk-sharing Innovations Models with Contract Research and Manufacturing Services (CRAMS), strategic acquisitions by Indian pharma firms, and global supply by Indian pharma companies was highlighted.
The Economic Survey also pointed out the role of Production-linked Incentive (PLI) Scheme in pharma, Revamped Pharmaceuticals Technology Upgradation Assistance Scheme (RPTUAS), Scheme for Promotion of Bulk Drug Parks, PLI for Medical Devices, Scheme for Promotion of Medical Devices Parks, and Strengthening of Medical Device Industry (SMDI) Scheme. The tone, tenor, and text of the Economic Survey have placed the Indian Pharmaceutical Industry in a highly positive light.
National Mission on Manufacturing (NMM), announced in the Union Budget 2025-26 is focusing on sector-specific interventions across 20 to 30 prioritised industrial clusters based on parameters such as employment generation capacity, demand potential, and presence of natural endowments. NMM has classified pharmaceutical sector into archetype – Scale for Rapid Expansion.
In this backdrop for pharma industry, initiatives taken by the Government after the Union Budget 2025, and developments in last one year, the Union Budget 2026-27 is set to be tabled in Parliament on February 1, 2026. Commitments in terms of outlay for existing schemes and initiatives regarding pharma industry are likely to leave little room for sparing significant portion of the budget.
Existing schemes and initiatives include Promotion of Bulk Drug Parks, PLI Schemes, Jan Aushadhi Scheme, Pharmaceutical Promotion & Development Scheme (PPDS), Assistance to Pharmaceutical Industry for Common Facilities (API-CF)/Cluster Development, Promotion of Medical Device Parks, HRD in Medical Device Sector, Assistance to Medical Device Clusters for Common Facilities (AMD-CF), Promotion of Research and Innovation in Pharma MedTech (PRIP), Medical Device Clinical Studies Support Scheme, Medical Device Promotion Scheme, Medical Device Promotion Scheme, Capacity Building and Skill Development for Medical Devices, Marginal Investment Scheme for reducing Import Dependence, and Assistance to PSUs namely Indian Drugs and Pharmaceuticals Limited (IDPL), Hindustan Antibiotics Limited (HAL), Bengal Chemicals and Pharmaceuticals Limited (BCPL), Bengal Immunity Limited, Rajasthan Drugs and Pharmaceuticals Limited (RDPL), and Smith Stanistreet Pharmaceuticals Limited.
Still there are many areas on which Indian Pharma Industry has voiced concern from time to time. A key expectation is that the government should spend 2.5 per cent of GDP on healthcare as per recommendation of National Health Policy (2017). Public Health Expenditure remains below 2.0 per cent of GDP. Increased public spending results into improvement in access to healthcare thereby increasing the demand for pharma products.
GST 2.0 reforms have resulted into zero GST on select lifesaving drugs & medicines, lowering GST on all other drugs & medicines to 5.0 per cent (from 12.0 per cent), and 5.0 per cent GST on medical apparatus & devices, and medical equipment and supplies. In Budget 2025-26, 36 lifesaving drugs and medicines were added to the list of medicines fully exempt from Basic Customs Duty (BCD). 6 lifesaving medicines were added to the list attracting concessional customs duty of 5.0 per cent. Specified drugs and medicines under Patient Assistance Programme (PAP) run by pharma companies were made fully exempt from BCD under specific conditions. Building on the Budget 2025-26, existing list can be expanded to reduce out-of-pocket costs.
A consistent demand of pharma industry remains the support for the Research & Development (R&D) especially the demand for restoration of weighted R&D deduction. Under Section 35 (2AB) of the Income Tax Act, weighted deduction used to be allowed that was phased out in FY 2020-21. In Economic Survey 2025 too, it was pointed out that there is concentration of R&D in select sectors, and Drugs & Pharmaceuticals sector was specifically mentioned. As major pharma companies are focusing on novel drugs, complex generics, vaccines, and biopharmaceuticals so the rationale given by these players is understandable. Moreover, R&D spending by Indian pharma companies is much lower as compared to their counterparts in the USA and China.
In this regard, it is pertinent to note that certain post-budget announcements in 2025 are likely to strengthen R&D ecosystem in the country, e.g., the Research Development and Innovation (RDI) Scheme launched on November 3, 2025 with a corpus of ₹1 Lakh Crore over six years and operationalized by the Anusandhan National Research Foundation (ANRF), is aimed at building a private sector-driven innovation environment. This partially took care of pharma companies’ concern on R&D investment as Biotechnology, biomanufacturing, synthetic biology, pharmaceuticals, and medical devices are part of Sunrise Sectors. Outlay of ₹20,000 Crore was approved for FY 2025-26. Institutions and universities are expected to benefit due to enhanced industry-academic collaborations.
To conclude, it can be said that pharma industry expectations from the budget include interventions which can lower their compliance cost, incentivize R&D investments, strengthen their manufacturing capability, improve competitiveness, increase accessibility of advanced therapies, and increase demand for pharma products.
Dr. Anil Kumar Angrish- Associate Professor (Finance and Accounting) and In-Charge, Department of Pharmaceutical Management, NIPER S.A.S. Nagar (Mohali), Punjab
Disclaimer: Views are personal and do not represent the views of the Institute.
