India's pharma sector treads cautiously as Trump tariff threat continue to loom large

Indian pharma stocks such as Aurobindo Pharma, Laurus Labs, IPCA Labs, and Lupin, fell up to 7 per cent as US President Donald Trump hinted at imminent tariffs on pharmaceutical imports. He said the pharma sector would be treated as a separate tariff category. This has brought in much unease to the sector, which had heaved a sigh of relief earlier, believing that it has been spared. Now the sector is treading cautiously as Trump tariff clouds are looming over the sector.

Many experts rightly pointed out that Section 232 of the Trade Expansion Act of 1962 enables the government of the US, more particularly the President of the US, to take necessary action to restrict the import of items/articles that are deemed to threaten or impair national security. While pharmaceuticals had been currently exempted from tariffs imposed by the US, potential future scrutiny under Section 232 could pose significant challenges for the sector.

“Since Section 232 primarily addresses national security concerns, pharmaceutical imports may be evaluated not just economically, but strategically. Indian pharmaceutical companies should closely monitor developments and proactively engage with policymakers, where possible, to ensure transparency around supply chain security, quality standards, and the strategic importance of maintaining diverse, reliable sources of essential and generic medicines. Proactive preparedness and strategic dialogue will be key to mitigating risks associated with potential Section 232 actions,” remarked Arvind Sharma, Partner, Shardul Amarchand Mangaldas & Co.

The Indian pharma sector has started feeling the jitters and the future is expected to be jittery for them in the US market. Till Thursday, many experts had pointed out that the US administration might have exempted pharmaceuticals from reciprocal tariffs, due to its focus on enhancing the availability of affordable medical care of the US citizens.

As per CRISIL, India exported US $8 billion of pharma products to the United States in fiscal 2024 which is its largest export destination. The Indian pharma sector also supplies 40 per cent of generics consumed in the US. India has more than 650 manufacturing facilities approved by the US Food and Drugs Administration (USFDA), the second-highest number outside the US. They account for a quarter of all such certified facilities outside the US.

“The possibility of tariffs being imposed by the US administration on pharmaceuticals at a later stage cannot, however, be ruled out. That said, several potentially mitigating factors—ongoing drug shortages in the US, the higher cost of domestic pharmaceutical production, and declining profitability of US pharma firms—are expected to be taken into consideration before any such imposition,” remarked Anuj Sethi, Senior Director, Crisil Ratings.

On Thursday, pharmaceutical stocks had performed well as the sector had been exempted from tariffs; however, Nifty Pharma took a beating on Friday, retreating over four per cent.

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