Credit Crunch in Indian Pharma SMEs: A Bitter Pill To Swallow?

India’s pharmaceutical industry, often hailed as the “pharmacy of the world,” stands tall with its well-established infrastructure and a strong track record in drug manufacturing. Ranking third globally in terms of volume and 14th in value, the country supplies over half of the world’s demand for vaccines and plays a pivotal role in the production of generic medicines. With projections suggesting the industry will hit USD 65 billion by 2024 and double to USD 130 billion by 2030, the future looks promising for India’s pharmaceutical sector—or so it seems. But beneath this success story lies a harsh reality, particularly for small and medium-sized enterprises (SMEs) that form the backbone of this industry. For these firms, the road to success is riddled with obstacles, with the biggest roadblock being access to credit.

India is home to over 3,000 pharmaceutical companies, supported by an expansive network of more than 10,500 manufacturing facilities. However, these numbers paint a picture that doesn’t reflect the ground reality for many SMEs. While the industry giants may flourish, the smaller players, who are integral to India’s pharmaceutical landscape, often find themselves gasping for financial oxygen. As any small business knows, funding is the lifeblood of innovation, expansion, and growth. Yet, for Indian pharma SMEs, obtaining this lifeblood is akin to drawing water from a stone—an arduous task filled with roadblocks. Traditional financing methods, particularly those related to cross-border transactions, are proving to be not just cumbersome but outright exclusionary. These systems are designed with the needs of larger corporations in mind, leaving SMEs stuck in a quagmire of outdated processes, prohibitive costs, and opaque bureaucratic hurdles.

But if these obstacles weren’t enough, the pharma SMEs face another bitter pill to swallow: the challenge of funding research and development (R&D). In an industry where innovation is the name of the game, it’s ironic that SMEs, despite their significant contributions to the sector, find themselves in a financial bind when it comes to R&D. Developing a new drug, conducting clinical trials, and compiling comprehensive case studies are all capital-intensive undertakings. For SMEs, finding the resources to fuel these initiatives is often a Herculean task. In 2021, India became the sixth largest receiver of national patent applications, and the number of design applications increased by 70 percent the following year. While these numbers point to the sector’s potential for innovation, they also underscore the pressing need for financial support that can sustain such growth.

Sadly, the funding gap between large pharmaceutical firms and their smaller counterparts continues to widen. For SMEs, navigating the maze of traditional financing methods and the capital-intensive demands of drug development is becoming increasingly difficult. Despite their role in contributing to India’s dominance in the global pharmaceutical industry, SMEs are caught between a rock and a hard place. They are too small to leverage the advantages that come with economies of scale, yet too significant to ignore. Their struggle to access funding, particularly for innovation, is a grim reminder that India’s pharmaceutical success story is not without its share of unsung challenges.

So, while the Indian pharmaceutical industry marches ahead, poised to reach staggering growth figures in the next decade, it’s crucial not to overlook the SMEs that are being left behind in the process. For these firms, credit growth—or rather the lack of it—is becoming a bitter pill to swallow. If left unaddressed, this financial crunch could stymie the very innovation and progress that the industry, and the world, so heavily relies on.