Indian pharma companies escape Trump’s reciprocal tariffs, for now

Pharmaceuticals, among other products, won't be subjected to the additional tariffs, according to a White House fact sheet issued shortly after the US President’s address. Currently, too, the US does not impose any tariff on pharma product imports from India.

The US is India’s largest export market for pharmaceutical goods, so the exemption brings huge relief to Indian pharma companies, which supply more than 45% of generics and 15% of biosimilars used in the US. Companies such as Aurobindo Pharma, Dr Reddy’s, Zydus Lifesciences, Gland Pharma and Sun Pharma earn anywhere from 30-50% of their total revenues from the US. The industry had been hopeful of an exemption in the lead-up to Wednesday’s announcement.

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However, this does not mean tariffs on pharmaceutical imports are off the table. Pharma companies “will come roaring back", Trump said in his speech on Wednesday, referring to big pharma increasing its manufacturing in the US. "We're going to produce the… medicines that we need right here in America," he said. Pharma giants such as Johnson & Johnson and Eli Lilly recently announced investments of $55 billion and $27 billion, respectively, for domestic manufacturing in the US.

Industry-specific tariffs were not part of the White House’s agenda on 2 April, and it's likely that tariffs on pharma goods will be announced later. According to an 1 April Reuters report, drugmakers are lobbying President Trump to phase in tariffs to give them time to shift manufacturing.

Industry leaders such as Dilip Shanghvi, managing director of Sun Pharma, previously indicated that if tariffs were levied, the costs would likely be passed on to consumers.

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“We have been continuously negotiating with the Trump government and have played our cards well," a senior industry executive, who did not wish to be quoted, told Mint prior to the announcement.

Of India's pharma exports of $27.9 billion in FY24, $8.7 billion or 31% were to the US, according to the Pharmaceuticals Export Promotion Council of India, an industry body.

Industry experts keeping a eye on trade talks between the two countries said it was likely that India would roll back its import tariffs. “If you see, our [import duty] for pharma products we import from the US is 5-10%... there’s a possibility that the government may [roll back] that import duty… so that the reciprocal tariffs are not there," Param Desai, senior research analyst at PL Capital Group, told Mint.

Pharma tariffs would hurt both countries

Analysts also cautioned that tariffs on pharmaceuticals could be announced later. “We wait for more details and note that higher tariffs on pharmaceuticals are not completely ruled out for the future," Tausif Shaikh, pharma and healthcare analyst at BNP Paribas India, said in a note.

India imposes about 5-10% tariffs on pharma products imported from the US. “Assuming a 10% tariff is imposed on pharma products, we expect the impact to be negligible," Shaikh said. “With a 10% baseline tariff cost, we see a 1-2% impact on FY27E Ebidta in our base case," he added.

“This no-tariff-impact after the first round will be a positive for the entire pharma sector," analysts at HDFC Securities said in a note. The analysts said Sun Pharma and Lupin were their top picks with a large US focus, as well as India-focused companies such as Torrent Pharma, Mankind, Ipca, and Eris Lifesciences.

“In case the US starts imposing tariffs on the pharma sector, it will impact both countries," the HDFC Securities analysts added. The US depends on low-cost generics manufactured in India, and tariffs could lead to price-hikes, inflation and drug shortages in the country. Indian companies, operating on thin margins in the US generics space, may struggle to absorb costs and end up passing them on to US consumers or insurers.

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Indian pharma stocks jumped when the market opened on Thursday, with shares of top companies such as Sun Pharma, Aurobindo Pharma, Dr Reddy’s Labs and Cipla among the top volume-led gainers on NSE. Shares of Dr Reddy’s were up 5.25% before settling at ₹1,152.80, up 0.16% at market close, Sun Pharma shares closed at ₹1,772, up 3.41%, and Aurobindo Pharma rose by over 4.7% before settling at ₹1,175, up 1.51% at close. CDMO player Gland Pharma was one of the highest gainer, with its shares surging 9.76% at market open. The stock settled at ₹1,554 at close, up marginally by 1.23%. The Nifty Pharma index was up nearly 4% in early trade and closed the day up 2.25%.