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Industry overview ipm Industry overview ipm Document Transcript

  • Chapter IIIndustry OverviewSection A: Pharmaceutical IndustryIntroductionThe Indian pharmaceutical industry ranks among the top five countries by volume (production) and accounts for about10% of global production. The industry’s turnover has grown from a mere US$ 0.3 bn in 1980 to about US$ 21.73 bn in2009-10. Low cost of skilled manpower and innovation are some of the main factors supporting this growth. According tothe Department of Pharmaceuticals, the Indian pharmaceutical industry employs about 340,000 people and an estimated400,000 doctors and 300,000 chemists.Industry structureThe Indian pharmaceutical industry is fragmented with more than 10,000 manufacturers in the organised and unorganisedsegments. The products manufactured by the Indian pharmaceutical industry can be broadly classified into bulk drugs(active pharmaceutical ingredients - API) and formulations. Of the total number of pharmaceutical manufacturers, about77% produce formulations, while the remaining 23% manufacture bulk drugs. Bulk drug is an active constituent withmedicinal properties, which acts as basic raw material for formulations. Formulations are specific dosage forms of a bulkdrug or a combination of bulk drugs. Drugs are sold as syrups, injections, tablets and capsules.Formulations can be categorised under various therapeutic groups (Exhibit 2.1):Exhibit 2.1: Therapeutic groups in the Indian formulations marketSource: D&B ResearchBased on the pharmaceutical customer base, the Indian API manufacturing segment can be divided into two sectors –innovative or branded and generic or unbranded. In 2009, the global generic drug market was estimated to be US$ 84 bn,of which the US accounted for 42%. India’s generic drug industry is estimated to be US$ 19 bn and it ranks third globally,contributing about 10% to global pharmaceutical production.Pharmaceutical manufacturing units are largely concentrated in Maharashtra and Gujarat. These states account for about45% of the total number of pharmaceutical manufacturing units in India.7
  • Chart 2.1: State-wise number of pharmaceutical manufacturing units in IndiaSource: Department of Pharmaceuticals, GoIChart 2.2: Concentration of pharmaceutical manufacturing units in India (%)Source: Department of Pharmaceuticals, GoISMEs in the pharma industryAccording to the Confederation of Indian Industries (CII), there are around 8,000 small and medium enterprises (SME)units, accounting for about 70% of the total number of the pharma units in India. Indian SMEs are also opening up foremerging opportunities in the pharmaceutical industry in the field of CRAMS, clinical research etc. These would drivethem to play a definitive role in the transitional global pharmaceutical environment, where a sizeable number of drugs areexpected to go off patent in the coming years. The Indian government has been making every attempt to support SMEsthrough several incentives. One such effort is the development of SME clusters in various parts of the country.Investment in the Indian pharmaceutical industry100% foreign direct investment (FDI) is allowed under automatic route in the drugs and pharmaceuticals sector, includingthose involving use of recombinant technology. Also, FDI up to 100% is permitted for brownfield investments ( in existing companies), in the pharmaceuticals sector, under the Government approval route. The drugs andpharmaceuticals industry attracted foreign direct investment to the tune of US$ 9.17 bn for the period between April 2000and January 2012. 8
  • Chart 2.3: FDI inflow in the drugs and pharmaceutical industry (US$ mn)*Fiscal year; Cumulative: April 2000 to January 2012Source: Ministry of Commerce & IndustryThe Indian pharmaceutical industry enjoys certain advantages, which attracts FDI in the country: 1) low cost of innovationand capital expenditure (to operate good manufacturing practices-compliant facilities) which provides leverage in pricingof drugs 2) transparency in the regulatory framework 3) proven track record in bulk drug and formulation patents 4) strongdomestic support in production, from raw material requirements to finished goods and 5) India emerging as a hub forcontract research, bio-technology, clinical research and clinical data management.Factors influencing growth of the industryThe Indian pharmaceutical industry ranks 14th in the world by value of pharmaceutical products. With a well-establisheddomestic manufacturing base and low-cost skilled manpower, India is emerging as a global hub for pharma productsand the industry continues to be on a growth trajectory. Moreover, India is significantly ahead in providing chemistryservices such as analogue preparation, analytical chemistry and structural drug design, which will provide it ample scopein contract research and other emerging segments in the pharmaceutical industry. Some of the major factors that woulddrive growth in the industry are as follows:• Increase in domestic demand: More than half of India‘s population does not have access to advanced medical services, as they usually depend on traditional medicine practices. However, with increase in awareness levels, rising per capita income, change in lifestyle due to urbanisation and increase in literacy levels, demand for advanced medical treatment is expected to rise. Moreover, growth in the middle class population would further influence demand for pharmaceutical products.• Rise in outsourcing activities: Increase in the outsourcing business to India would also drive growth of the Indian pharmaceutical industry. Some of the factors that are likely to influence clinical data management and bio-statistics markets in India in the near future include: 1) cost efficient research vis-à-vis other countries 2) highly-skilled labour base 3) cheaper cost of skilled labour 4) presence in end-to-end solutions across the drug-development spectrum and 5) robust growth in the IT industry.• Growth in healthcare financing products: Development in the Indian financial industry has eased healthcare financing with introduction of products such as health insurance policy, life insurance policy and cashless claims. This has resulted in increase in healthcare spending, which in turn, has benefitted the pharmaceutical industry.• Demand in the generics market: During 2008-2015, prescription drugs worth about US$ 300 bn are expected to go off patent, mostly from the US. Prior experience of Indian pharmaceutical companies in generic drugs would provide an edge to them.• Demand from emerging segments: Some of the emerging segments such as contract research and development, bio- pharma, clinical trials, bio-generics, medical tourism and pharma packaging are also expected to drive growth of the Indian pharmaceutical industry.9
  • Foreign trade in pharmaceutical productsThe Indian pharmaceutical industry’s growth has been fuelled by exports. Its products are exported to a large numberof countries with a sizeable share in the advanced regulated markets of the US and Western Europe. India currentlyexports drug intermediates, active pharmaceutical ingredients, finished dosage formulations, bio-pharmaceuticals andclinical services to various parts of the world. The top five export destinations of Indian pharmaceutical products are USA,Germany, Russia, UK and China. Indian exports of drugs and pharmaceuticals grew at a CAGR of 16.5% to ` 451.4 bn overFY02-FY12 (up to Dec 2011).Chart 2.4: Export of drugs and pharmaceuticals from India*Up to Dec 11Source: Directorate General of Commercial Intelligence and Statistics (DGCIS) KolkataImport of drugs and pharmaceuticals into India recorded a CAGR of 17.6% during FY02-FY12 (up to Dec 2011). DuringFY12 (up to Dec 2011), pharmaceutical products worth ` 102.2 bn were imported into India. India is almost self sufficientin formulations; its imports mostly comprise bulk drugs and some intermediaries. These imports are freely permitted,except those that are restricted in the foreign trade policy. Import restrictions are mostly on drugs that contain narcoticsand psychotropic components.Chart 2.5: Import of drugs and pharmaceuticals into India*Up to Dec 11Source: Directorate General of Commercial Intelligence and Statistics (DGCIS) Kolkata 10
  • Major challenges faced by the industryThe Indian pharmaceutical industry was on a strong growth trajectory in the last decade. It has achieved several milestonesand is well positioned to leverage emerging opportunities. However, the industry needs to tackle various issues related toits operations and regulations. It faces several challenges in the form of pricing of pharmaceutical products and impact ofsome agreements. This section touches upon several key issues and challenges faced by the industry:• Impact of GATT-TRIPS agreement: The General Agreement on Tariffs and Trade1 (GATT) and Trade Related aspects of Intellectual Property Rights2 (TRIPS) have an adverse impact on pricing of pharmaceutical products. Pharmaceutical companies are not allowed to re-generate existing drugs and formulations and change the existing process and manufacture the same drug. New investments are required to perform research. This is a major obstacle for pharma companies, especially the micro, small and medium enterprises. Moreover, transfer of technology from abroad is difficult and expensive. Consequently, revenue of the pharma companies is impacted. Hence, adequate measures should be taken to support the industry’s revenue and minimise losses.• Pricing: At present, pricing of 74 bulk drugs and their formulations, which account for a large share in the retail pharma market, are controlled by the Drug Price Control Order (DPCO)-1995. The Government had considered reducing the number of regulated drugs, but it has not been implemented. There is a need to reduce the number of regulated drugs to facilitate the growth of the pharmaceutical industry.• Drug diversions by institutions: Most of the institutional clients of the Indian pharmaceutical companies comprise government hospitals, the Indian defence service and private hospitals; the defence sector is mandated to buy drug stocks through tenders in quantities twice as large as the projected demand for those drugs in the following year at a discounted price. At the year-end, surplus available at the institutions is pushed to regular channels by leveraging the price discounts, resulting in a loss for companies through the regular distribution channel.Indian pharmaceutical industry: SWOT analysisThe SWOT analysis of the industry reveals the position of the Indian pharmaceutical industry in respect to its internal andexternal environment.Strengths• Low cost of innovation, manufacturing and operations• Low cost of skilled manpower and proven track record in design of high technology manufacturing devices.Weaknesses• Stringent pricing regulations affecting the profitability of pharma companies• Presence of more unorganised players versus the organised ones, resulting in an increasingly competitive environment, characterised by stiff price competition.Opportunities• Opening of the health insurance sector and increase in per capita income - the growth drivers for the pharmaceutical industry• India, a potentially preferred global outsourcing hub for pharmaceutical products due to low cost of skilled labour.Threats• Other low-cost countries such as China and Israel affecting outsourcing demand for Indian pharmaceutical products• Entry of foreign players (well equipped technology-based products) into the Indian market.1 GATT came into existence in 1948 with 23 countries as founding members. Later, more than 100 countries joined in. GATT was the only multilateral instrumentgoverning international trade from 1948 until 1995, when the WTO was established.2 An intellectual property right refers to any creation of the human mind, which seeks legal recognition and protection such that the creator of the intangible isprotected from illegal use of creation. TRIPS include several categories of property such as patents, copyrights, trademarks, geographical indications, designs,industrial circuits and trade secrets.11
  • OutlookOverall growth outlook for the Indian drugs and pharmaceutical industry appears positive. Pharma manufacturers arelikely to benefit from rise in demand for generic products. Some of the factors that would drive growth in the domesticpharma industry are: 1) low cost operations 2) research-based processes 3) improvements in API and 4) availability ofskilled manpower.The domestic formulations and bulk drugs markets are currently facing price pressure as benefits of cheaper drugs havebeen shifted to end-users and trade channels. Hence, consolidation, partnership and alliances are expected to gathermomentum in the near future. Off patenting of branded drugs would increase demand for generic drugs. This providesimmense opportunities to the Indian pharmaceutical companies especially given their prior experience in generic drugdevelopment. Some other factors such as high penetration in the global markets and increase of share in Abbreviated NewDrug Application (ANDA) filings are likely to power growth of the formulations market. Major growth drivers for theIndian bulk drug industry include rise in demand for contract manufacturing, increase of share in Drug Master Files (DMF)filings and process innovation.Furthermore, initiatives of the Government will act as a backbone for growth. Some such initiatives include: 1) allowing100% FDI under the automatic route in drugs and pharmaceuticals including those involving use of recombinant technology2) increasing weighted tax deduction on expenditure in in-house R&D activities to 200% in the Budget 2010 and 3) settingup a US$ 639.56 mn venture capital fund to support drug discovery and strengthen pharmaceutical infrastructure.Section B: Textiles & Garments IndustryIntroductionThe Indian textiles industry plays an important role in the country’s economic growth. The industry is important in termsof output, foreign exchange earnings and employment. It contributes around 14% to industrial production, 4% to GDP and10.6% to the country’s export earnings.One of the key trends witnessed in the liberalised post-quota period is that India emerged as a major sourcing destinationfor new players. With growing interest in the Indian textiles and clothing sector, a number of buyers opened their sourcing/liaison offices in India. The recent couple of years were challenging for the Indian textiles industry as a result of the globaleconomic slowdown. Back home, the industry faced challenges of strong demand side pressures due to inflationary trendsand volatility in commodity prices.Size and structure of the industryThe Indian textile industry is fragmented, with only a few large players and numerous small and medium-size companies.The industry’s size is estimated at US$ 55 bn with 64% of the companies catering to domestic demand. The textiles industryprovides direct employment to more than 35 mn people and indirect employment to 47 mn people. In addition, theindustry generates significant employment through forward and backward linkages, both in traditional (production ofcotton and other natural fibres) and modern activities (textile design, etc). In fact, the textiles industry is the second-largestemployment generator after agriculture.The clothing sector is the final stage of the textiles value chain, with maximum value addition at this level. It is a lowinvestment and high labour-intensive industry; an investment of ` 0.1 mn creates 6 to 8 jobs. The industry employs around5 mn workers, of which, around 2.5 mn are in the export sector. The clothing industry consists mainly of knitted and wovengarment segments. This industry is fragmented and is predominantly in the small scale sector.Apparel clusters in IndiaThe apparel industry is concentrated mainly in eight clusters: Tirupur, Ludhiana, Bengaluru, Delhi/Noida/Gurgaon,Mumbai, Kolkata, Jaipur and Indore. While Tirupur, Ludhiana and Kolkata are major centres for knitwear, Bengaluru,Delhi/Noida/Gurgaon, Mumbai, Jaipur and Indore are major hubs for woven garments. 12
  • Industry structureThe textiles sector in India comprises both organised and unorganised segments. More than 70 textile and clothing clustersaccount for about 80% of total production in the country. There are nearly 40 powerloom clusters in the country. Majorstates with a number of clusters are Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka, Kerala and Uttar Pradesh. Thetextiles industry is extremely diversified with hand-spun and hand-woven sectors at one end and the capital-intensive,sophisticated mill sector at the other. The de-centralised powerloom/hosiery and knitting sectors form the largest sectionof the textiles industry.Major sub-sectors of the textiles sector are organised cotton/man-made fibre textiles mills, man-made fibre/filament yarn,wool and woolen textiles, sericulture and silk textiles, handlooms, handicrafts, jute and jute textiles and textiles exports.Exhibit 2.2: Textile industry value chainSource: D&B ResearchTable 2.1: SWOT analysis of the Indian Textile industry Strengths Opportunities • Various types of raw materials are available in abundance • Favourable demographics in the domestic market; increasing young • Government initiatives to encourage exports and upgrade population coupled with rising income levels technology • Emergence of retail industry as a whole and development of various • Low cost of labour malls provide huge opportunities for the apparel segments • Strong presence across the entire value chain, from fibre to • Opportunities in product diversification (for e.g, Technical Textiles) garments • Increasing working female population with higher propensity to spend compared with home keepers • Change in consumption pattern, including rising demand for high- quality premium fabrics and development of various products cater to global needs • Replacement of the Multi Fibre Agreement (MFA) and integration of the textile industry resulting in huge opportunities for exports. Moreover, gradual development in the technical side of the industry provides an opportunity Weaknesses Threats • Low cotton yield per hectare, high financing cost and lack • Increased, cost-based competition from other countries (Bangladesh, of adequate technology Vietnam, and Sri Lanka) • High dependence on EU and US for exports • Pricing pressures due to removal of US and EU quotas on imports from • Highly fragmented industry with large number of small- China size and technologically-outdated plants, lacking benefits • Fluctuations in the demand in exports due to the elimination of quota of economies of scale regime • Infrastructure bottlenecks for handling huge volumes • Higher borrowing cost which affects the profitability of the small and • Lack of trained manpower and low labour productivity due medium firms to lack of technological development • Rising input costsSource: D&B Research13
  • Chart 2.6: Trend in cloth production*Provisional; FY12 data is up to JanSource: Office of the textile commissionerBetween FY03 and FY12, India’s cloth production recorded year-on-year growth in each of the years, barring FY03, FY09 andFY12. After the 2% decline in production in FY09, cloth production grew by 9.8% in FY10 and 3.7% in FY11, respectively.Data for FY12 available up to January 2012 reflects cloth production of 50,492 mn sq metres, 4.1% lower than productionin the corresponding period of FY11.Composition of cloth productionThe composition of cloth production has remained more or less unchanged during the past decade. The average share ofcotton in total cloth production was around 47.7% during FY02-FY12. Average share for non-cotton cloth was 37.6% during thisperiod. During FY12 (Apr-Jan), production of cotton cloth declined by 5.1% to 25,150 mn sq mtrs, as compared to productionin the corresponding period of FY11. Production of non-cotton cloth also declined by 4.7% to 17,637 mn sq mtrs.Chart 2.7: Composition of cloth production (mn sq mtrs)*Provisional; FY12 data is up to JanSource: Office of the textile commissionerExports scenarioTextile exports play an important role in overall exports from India. The Indian textiles and clothing industry is one ofthe largest contributors to the country’s exports. India’s share in the world textile and clothing market, although small, isrising steadily. India’s share in the global textile and apparel markets is around 4% and 3% respectively. The export basketof the Indian textiles industry consists of a wide range of items: readymade garments, cotton textiles, handloom textiles,man-made fibre textiles, wool and woollen goods, silk, jute and handicrafts, including carpets.In the global exports of textiles, 14
  • India ranked as the third largest exporter with a share of 5.1%, trailing EU-27 and China. In the global exports of clothing,India ranked as the sixth largest exporter with a share of 3.2%, trailing Turkey, Bangladesh, Hong Kong, EU-27 and China.Box 2.1: Basic facts: Indian textiles and clothing (T&C) exports • India’s share in global T&C trade: 4% in textiles and 2.8% in clothing • India’s rank in world trade: 7th in textiles and 6th in clothing • Share in the country’s total exports basket: 12% • Readymade garments share: nearly 50% of total textile exports • India’s textiles products are exported to over 100 countries • Two-third of India’s textiles are exported to the US and EU • Other major export destinations include Canada, UAE, Japan, Saudi Arabia, Republic of Korea, Bangladesh and Turkey.Source: Ministry of TextilesIndia’s textile exportsIndia’s textile exports declined in FY09 mainly due to fall in demand owing to the global slowdown. However, during FY10,exports recovered and recorded a marginal increase of 0.6%. With economic recovery, exports of textiles rose sharply by33% in FY11. During FY12 (Apr-Dec), textile exports recorded healthy growth of 18% at US$ 10.7 bn, over exports in thesame period of FY11.Chart 2.8: Exports of textiles (US$ bn)*Up to Dec-11Source: DGCI&SChart 2.9: Composition of textile exports – FY12* (%)*Up to Dec-11Source: Office of the textile commissioner, GoI15
  • The USA and the EU account for about two-third of India’s textiles exports. The other major export destinations includeChina, UAE, Sri Lanka, Saudi Arabia, Republic of Korea, Bangladesh, Turkey, Pakistan, Brazil, Hong Kong, Canada andEgypt.Although India exports textiles to more than 100 countries, they are heavily skewed in terms of export destinations. The top10 destinations for India’s readymade garments exports account for nearly 80% of India’s RMG exports. Even among theleading 10 export markets, the US accounts for the largest chunk; readymade garments exports from India to the US hadthe largest share of 23% during FY12 (up to Dec).The Middle East, particularly UAE, is another important destination for India’s readymade garment exports. UAE’s sharein total RMG exports from India had halved from 10% in FY01 to around 5% by FY06. Nevertheless, since FY07, there hasbeen a reversal in trend; UAE’s share recovered to 10% during FY11 and FY12 (up to Dec).Chart 2.10: Major destinations for India’s RMG exports* (%)*For FY12 (up to Dec-11)Source: DGCI&SChart 2.11: Top-10 destinations for India’s RMG exports* (US$ mn)*For FY12 (up to Dec-11)Source: DGCI&SMajor government policies/initiativesPost liberalisation, Government of India (GoI) has undertaken several key initiatives to boost the industry’s growth. It hasremoved barriers that hindered growth and expansion. Some major policies include: 16
  • National Textile Policy - 2000In 2000, GoI announced the National Textile Policy – 2000, which replaced the previous Textile Policy of 1985. One of themain objectives of the new policy is to enable the textile industry to attain and sustain a pre-eminent global standing inmanufacture and export of clothing.Some other key objectives of the policy are: - Equipping the industry to withstand pressures of import penetration and maintaining dominant presence in the domestic market - Liberalising controls and regulations so that different segments of textile industry are able to perform in a greater competitive environment - Developing a strong multi-fibre base with thrust on product upgrade and diversification - Sustaining and strengthening the traditional knowledge, skills and capabilities of the weavers and craftsmen.De-reservation of the garments sectorPrior to the National Textile Policy – 2000, Indian garment sector was reserved for the SSI sector; large enterprises couldmanufacture apparels, provided they met the export obligation of minimum 50% of output. This policy acted as animpediment to growth by preventing capacity expansion and technological upgradation of garment manufacturing units.To improve competitiveness of garment manufacturers, the Textile Policy – 2000 removed this restriction and de-reservedgarments, hosiery and knitwear from the SSI sector.Foreign Direct Investment – 100% FDI is allowed in the textiles sector under the automatic route; this encourages internationaltextile companies to set up base in India. The chart below depicts inflow of FDI into the Indian textiles industry:Chart 2.12: FDI inflows in the textiles sector (` bn)*Up to OctSource: Office of the textile commissionerTechnology Upgradation Fund Scheme (TUFS): TUFS was initially commissioned in April 1999 for five years to facilitatemodernisation and upgradation of the textile industry. It is a flagship programme of Ministry of Textiles and has actedas a catalyst in attracting investments into the textiles sector. Under this scheme, GoI provides credit to manufacturers inthe organised and unorganised sector at reduced rates. It provides capital subsidy of 10% and interest subsidy of 5% oninstallation of machinery for manufacture of technical textiles, garmenting machinery and processing machinery underTUFS. The Government has recommended continuation of TUFS with an allocation of ` 158.9 bn for the entire 12th FiveYear Plan.17
  • Chart 2.13: Share of major textile sectors in TUFS (%)Source: Ministry of TextilesScheme for Integrated Textile Parks (SITP): This scheme has been implemented to facilitate setting up of textile units withappropriate support infrastructure. The total project cost (including land, infrastructure, buildings and common facilities,factory building for production and installed plant and machinery) is funded through a mix of equity/grants - from theState Industrial Development Corporation, Industry and Project Management Consultant and Loan – from banks/financialinstitutions. GoI’s support under the scheme is via grant or equity, limited to 40% of the project cost, subject to a ceiling of` 400 mn.The way forwardAs per the Strategic Plan (2011-2016) of the Ministry of Textiles, the industry needs an investment of ` 1,990.0 bn till theend of the 12th Plan (2016-17) to cater to the expected growth in demand. The spinning, weaving and processing segmentswould require a significant portion of this investment.In a bid to provide a boost to the sector and generate more employment, the Government plans to increase the investmentin the textiles sector through various schemes i.e. Scheme for Integrated Textiles Parks (SITP), Technology UpgradationFund Scheme (TUFS), Integrated Skill Development Scheme (ISDS), Technology Mission on Technical Textiles (TMTT) etc.The allocation during the 12th Five Year Plan is proposed to be increased to ` 496.5 bn, as against an allocation of ` 140.0 bnduring the 11th Plan.Notwithstanding the bright prospects, on the export front, the industry faces certain critical constraints: lack of properinfrastructure, high power and transaction cost, incidence of state level cess and duties, lack of state-of-the-art technologyetc. To reduce over-dependence on the EU and US markets, thrust should be on tapping new markets such as Japan, SouthAsia, Australia, Latin America and South Africa to promote exports.To ensure sustained growth and expansion of the Indian textile industry, it is necessary to maintain healthy export growthmomentum, increase production and productivity in cotton yarn, enhance value addition in garmenting and apparelsectors, promote the rich heritage of handlooms and handicrafts, institutional strengthening in the jute sector, and enhanceacreages under mulberry production and safeguard employment opportunities. More concerted efforts need to be taken tobridge the skill gap in the textiles industry. 18
  • Exhibit 2.3: Future growth drivers of readymade garmentsSource: D&B ResearchGoing forward, the domestic readymade garments industry is expected to be driven by a buoyant economy, increasingpurchasing power and increase in retail activity. India is still a relatively small but growing player in the global apparelmarket. With recovery in the world economy and anticipated increase in demand, particularly in the emerging economies,prospects for growth of the Indian readymade garments industry and the overall textiles industry look bright.19