Two scenarios, one concern: Will US tariffs hit the Indian pharma next?

As the United States under President Donald Trump prepares to impose a 25% tariff on Indian goods starting August 1, India’s pharmaceutical sector—though currently excluded from the tariff list—is closely watching the developing situation. With an ongoing Section 232 investigation into pharma imports in the U.S., concerns persist that the exemption may be temporary.

Temporary relief, lingering risk

The current list of goods subject to the 25% tariff does not include drug formulations and active pharmaceutical ingredients (APIs). This is consistent with the reciprocal tariff framework announced in April, which specifically exempted pharmaceuticals.

However, industry observers warn that the situation could change depending on the outcome of a Section 232 investigation—an instrument used by the U.S. administration to determine whether certain imports pose a threat to national security. The probe, still underway, could potentially bring Indian pharma exports under the tariff net in the coming weeks or months.

“The U.S. has announced a 25% general tariff on Indian imports, effective August 1. However, drug formulations and APIs are currently excluded,” said Maitri Sheth, Equity Research Analyst – Pharma at Choice Broking. “That said, we flag the ongoing Section 232 investigation into pharma imports as a medium-term overhang. In the absence of clarity on the potential rate and scope of such tariffs, it remains difficult to quantify the impact on Indian pharma players.”

India exported nearly $11 billion worth of pharmaceuticals to the U.S. in FY25, accounting for around 35% of its total pharma exports. A report by Nuvama Institutional Equities analysts Kapil Gupta, Prateek Parekh, and Tanisha Gupta highlighted that the U.S. remains a critical market. “The direct impact is likely to be on sectors where the U.S. sets the marginal price—pharma, auto ancillaries, and select industrials,” the report said.

While larger firms with U.S.-based manufacturing may be relatively insulated, smaller players could face operational stress. “Larger players are likely to remain broadly insulated; others anticipate a limited impact, with plans to pass on incremental costs to customers where feasible,” Sheth added.

Risks of price shocks

Although pharmaceuticals have so far been spared from the proposed U.S. tariffs, any extension of duties to the sector could ripple across global healthcare systems and unsettle India’s export-driven drug industry.

Industry executives warn that such a move could interrupt the already fragile global supply chain for affordable generics. “India isn’t just a key supplier of generics to the U.S.; we are part of the backbone of affordable global healthcare,” said Sanjaya Mariwala, Executive Chairman and MD of OmniActive Health Technologies. He noted that tariffs may lead to higher U.S. drug prices, stalled treatments, and increased pressure on the American healthcare system.

The concern isn’t limited to overseas implications. Mariwala highlighted that back in India, pharmaceutical firms could see profits shrink, R&D spending decline, and new drug development slow. He added, “This is a wake-up call—India must double down on securing Free Trade Agreements with other major economies.”

His concerns echo broader anxieties among policymakers and exporters. India supplied about 47% of all U.S. generic prescriptions in 2022, making it a linchpin in America’s drug ecosystem. “The proposed 25% tariff raises concerns about rising costs and potential disruptions in medicine access for U.S. patients,” said Bhavin Mukund, Vice Chairman of Pharmexcil.

Investor sentiment has already reacted. On the day following the announcement, shares of several pharmaceutical companies declined—Jubilant Pharmova fell 3.15%, Ipca Laboratories dropped 3.28%, and Lupin declined 2.63%. Larger firms like Dr. Reddy’s Laboratories, Cipla, and Sun Pharma also saw their stocks dip.

Pharma analyst Sallil Kallianpur believes the Indian industry is facing a “net negative impact” from the unfolding tariff scenario. While long-term benefits like friendshoring may exist, he stressed that the immediate risks—revenue loss and margin compression—are more pressing. “The industry’s low-cost model, which underpins its dominance in the U.S., is especially vulnerable to price shocks,” he said.

Kallianpur also warned that the impact would not be uniform. Smaller and mid-sized pharmaceutical companies, lacking the buffers and global diversification of larger peers, may face consolidation or even closures. Larger firms, by contrast, could respond by ramping up U.S. investments or seeking alternative markets.

Delhi keeps its powder dry – for now

While the industry grapples with uncertainty, the Indian government has responded with cautious restraint. A brief statement from the Ministry of Commerce & Industry, issued after the U.S. announcement, said, “The Government has taken note of the statement by the U.S. President on bilateral trade. The implications are being studied. India remains committed to a fair, balanced, and mutually beneficial trade relationship and will take all necessary steps to protect national interest.”

The statement further emphasised that India and the U.S. have been in negotiations to finalise a bilateral trade agreement and reiterated the government’s commitment to protecting the interests of farmers, entrepreneurs, and MSMEs.

In a broader context, Pavan Choudary, Chairman of the Medical Technology Association of India (MTaI), termed the tariffs “strategically misguided.” He warned that using trade to penalise sovereign decisions—such as India’s stance on defence or energy—sends a troubling signal to global partners.

“Framing a key democratic partner in adversarial terms sends the wrong signal and could jeopardise a relationship built on shared strategic interests and trust,” Choudary said. He invoked the historical precedent of the 1930 Smoot-Hawley Tariff Act, which worsened the Great Depression and prompted the U.S. to reverse course in favour of trade liberalisation just a few years later.

Looking ahead, Kallianpur noted that the Indian government’s response—whether in the form of counter-tariffs, a WTO complaint, or supportive domestic policies like tax breaks or production-linked incentives—could determine how well the pharma sector weathers this uncertainty. “The industry must brace for short-term pain, with recovery hinging on agile adaptation and U.S. policy specifics,” he said.