Production Linked Incentive (PLI) Schemes: Impact On The API Ecosystem In The Pharmaceutical Manufacturing Industry

India’s pharmaceutical sector has always been strategically positioned as a global supplier of affordable and high-quality drugs. However, for decades, the industry’s API (Active Pharmaceutical Ingredient) dependency on China exposed a structural vulnerability, especially for critical antibiotics, hormones, vitamins, and fermentation-based APIs. When global supply chains were disrupted in 2020, India faced sharp price fluctuations, shortages, and risks to essential drug production. This situation pushed policymakers to rethink long-term manufacturing resilience.

The Government of India responded with one of the most transformative interventions in the sector’s history, the Production Linked Incentive (PLI) Scheme for pharmaceuticals, with a dedicated component for API, KSMs (Key Starting Materials), and drug intermediates. The scheme was designed not merely as a subsidy programme but as a strategic industrial blueprint to rebuild India’s end-to-end pharmaceutical value chain.

Today, as multiple PLI-backed API plants begin operations across different states, the scheme is reshaping India’s API ecosystem, from technology capability and cost structures to supply chain security and global competitiveness. This blog explores the impact of the PLI scheme on the API landscape, the progress made, and the future prospects for the Indian pharmaceutical industry.

Understanding the PLI Scheme for APIs: A Strategic Push for Self-Reliance

The API component of the PLI scheme was launched with a clear objective:

to reduce import dependence and incentivise large-scale local manufacturing of critical APIs, KSMs, and intermediates.

The scheme targeted approximately 53 critical molecules across various categories, including antibiotics, complex fermentation products, analgesics, vitamins, and cardiovascular APIs, molecules on which India heavily relied on China.

The incentive structure was designed to reward companies for incremental sales of domestically manufactured APIs. This meant manufacturers could justify capital-intensive investments, especially for fermentation-based APIs that require high capital expenditures and long gestation periods.

The scheme was implemented in two main segments:

1. Chemical synthesis-based APIs and KSMs
2. Fermentation-based APIs, which are costlier and technologically challenging

The design ensured that both small and large players could participate based on their production capacities and technical capabilities.

Catalysing Domestic API Manufacturing: Key Shifts Seen in the Industry

The PLI scheme has triggered visible changes in India’s API ecosystem. While some are immediate outcomes, others will unfold over a longer period as manufacturing capacities stabilise.

1. A Revival of Large-Scale API Manufacturing Units

India previously had strong API manufacturing capabilities, but many units became unviable due to cost competition from China. The PLI scheme reversed this trend by enabling companies to reinvest in brownfield and greenfield API plants. Several manufacturers have restarted production of antibiotics, hormones, and analgesic APIs.

This revival has strategic significance. APIs such as Penicillin-G, Cephalosporins, and certain vitamins are critical for national drug security, and India is now moving towards partial self-sufficiency in these categories.

2. Investments in Advanced Technologies and Modular API Infrastructure

The scheme encouraged companies to adopt newer technologies such as:

• Process intensification
• Fermentation optimization
• Distributed control systems (DCS)
• Continuous manufacturing technologies
• Bio-catalysis and enzymatic synthesis

These technologies reduce costs, improve yields, and enable India to match global efficiency standards. Additionally, new plants are increasingly designed with modular and scalable layouts, enabling manufacturers to quickly expand capacity as demand grows.

3. Strengthening KSM and Intermediate Production

One of the most important impacts of the PLI scheme is the shift towards domestic KSM production. Previously, even companies manufacturing APIs in India often relied on imported KSMs, locking them into foreign supply chains. This has improved supply chain reliability and reduced price volatility for essential APIs.

The scheme encouraged backward integration, resulting in:

• More local sourcing of chemical intermediates
• Investments in captive KSM units
• Development of integrated API parks
• Increased R&D for alternative synthesis routes

4. Improved Cost Competitiveness and Reduced Import Dependence

With incentives covering a significant portion of operational costs, Indian companies can now manufacture APIs at competitive prices.

For many molecules, Indian cost structures were previously uncompetitive due to electricity costs, raw material pricing, and fermentation inefficiencies. With incentives and modernised plants, the cost gap is narrowing.

Early industry assessments indicate that India’s import dependence for several critical APIs has already begun to decline, marking a positive shift toward Atmanirbhar Bharat in the pharmaceutical sector.

5. Boost to MSMEs and Regional API Clusters

New API clusters are emerging in states like Andhra Pradesh, Himachal Pradesh, Gujarat, and Telangana, generating supply chain opportunities for smaller local players. This cluster-based growth model improves operational efficiency, reduces logistics costs, and strengthens regional pharma ecosystems. 

Although the PLI scheme largely attracted mid-to-large manufacturers, its ripple effect significantly benefits MSMEs involved in:

• Solvent recovery
• Supply of intermediates
• Equipment manufacturing
• Packaging components
• Ancillary services such as water systems and cleanroom solutions

Impact on India’s Global Position in Pharmaceutical Manufacturing

The PLI scheme is not just about domestic resilience; it is also shaping India’s position in global pharmaceutical supply chains.

Enhancing India’s Export Readiness

With new API capacities, India is better positioned to supply regulated markets such as the US, EU, and Japan. This enhances India’s credibility as a reliable global supplier of APIs. Modern PLI-backed facilities are being built with:

• USFDA and EMA-compliant infrastructure
• Automated quality control systems
• Digitised batch records
• Process validation and data integrity systems

Strengthening Biotech and Fermentation Capabilities

Fermentation technology has long been a weak point for India. This shift will be crucial as biologics, peptides, and advanced intermediates gain importance in the future of pharmaceuticals.

The PLI scheme has encouraged companies to:

• Build new fermentation plants
• Collaborate with global technology providers
• Invest in microbial strain development
• Improve process optimisation capabilities

Enabling India to Compete with Global API Hubs

China currently dominates global API supply due to scale, automation, and low-cost production. The PLI scheme does not immediately eliminate this gap, but it positions India as a formidable alternative supplier.

As geopolitical dynamics shift, global markets are seeking diversification. India’s emerging API ecosystem now gives pharma innovators and generic manufacturers a credible second source for high-volume and critical APIs.

Challenges That Still Need Attention

Despite strong progress, the API ecosystem faces several ongoing challenges that need structural solutions.

The PLI scheme alone cannot resolve everything, as API manufacturing is deeply linked to energy costs, environmental regulations, and global market dynamics.

Some of the major challenges include:

Dependence on Certain Imported Raw Materials

Even with local API manufacturing, India still imports solvents, reagents, and speciality chemicals essential for synthesis. Deep backward integration will take time and requires a push towards domestic chemical manufacturing.

High Utility and Compliance Costs

Fermentation APIs demand significant power, water, and effluent treatment capacity. Operating cost parity with China requires long-term policy support, such as reduced gas prices and viable energy tariffs for bulk drug parks.

Technology Gaps

Some fermentation-based APIs require advanced microbial strain engineering and bioprocess optimisation capabilities. Indian companies are currently catching up, but global competitors have decades of experience.

Regulatory and Environmental Approvals

API plants are subject to stringent pollution control norms. Delays in environmental clearances can slow down project timelines, impacting the momentum of the PLI scheme.

The Road Ahead: Strengthening India’s API Future

The PLI scheme is expected to have a long-term multiplier effect on India’s pharmaceutical sector. As more PLI-backed facilities achieve full operational capacity, the following trends will likely accelerate:

• Increased domestic supply of critical APIs, reducing strategic vulnerabilities.
• Stronger R&D infrastructure for process chemistry and fermentation science.
• Expansion of API export markets as global buyers diversify sourcing.
• Improved valuation and competitiveness of Indian pharma companies.
• Creation of integrated API parks that support economies of scale.

India’s API revival is not merely a policy-driven outcome; it is a structural transformation that aligns with global needs for diversified and resilient supply chains.

With continued government support, technology adoption, skilling initiatives, and collaborative innovation, India is well on its way to re-establishing itself as a global hub for API manufacturing.



FAQs

1. What is the PLI scheme for APIs in India?

It is a government incentive program designed to promote the domestic production of critical APIs, KSMs, and intermediates, thereby reducing reliance on imports.

2. How does the PLI scheme help the pharmaceutical industry?

It supports large-scale manufacturing, improves cost competitiveness, encourages new investments, and strengthens supply chain security.

3. Which APIs are covered under the PLI scheme?

Around 53 critical APIs, including antibiotics, vitamins, analgesics, and fermentation-based molecules, have been prioritised for development.

4. Does the PLI scheme benefit MSMEs in pharma?

Yes, MSMEs benefit indirectly through supply chain opportunities, ancillary manufacturing, and regional API cluster development.

5. What is the long-term impact of PLI on India’s API ecosystem?

It will enhance self-reliance, reduce import dependence, boost exports, and modernise India’s manufacturing infrastructure.