The article was first published in The Economic Times Healthworld.com on January 29 2026. Please click here to read the article.
As the Union Budget 2026–27 approaches, India’s pharmaceutical industry stands at a defining moment. The sector has long been recognized globally for its scale and affordability, but sustaining growth will now depend on moving up the value chain - towards innovation, quality, and supply chain resilience. Expectations from Budget 2026 therefore go beyond incremental tax reliefs and focus on long-term policy alignment.
At the policy level, public healthcare spending remains the most decisive lever shaping pharmaceutical demand and continues to seek stronger public investment in healthcare.
Higher government spending on healthcare infrastructure, particularly in primary and secondary care, has a direct multiplier effect on medicine demand while improving health outcomes. Greater focus on preventive healthcare, chronic disease management, and digital health can help address India’s evolving disease profile and create predictable demand for pharmaceuticals.
Innovation remains the sector’s most pressing structural gap. India’s pharmaceutical ecosystem has historically thrived on replication and scale, but global pricing pressures are narrowing this path. Encouraging deeper investment in research-intensive segments and providing carefully designed fiscal support for research activity can nudge firms toward higher-value participation without distorting incentives.
To build resilience in Budget 2026, the government should adopt a multipronged approach that goes beyond tax breaks and incentives for generic production.
Key interventions could include negotiating tariff carve-outs or exemptions for essential medicines, expanding market diversification initiatives to reduce over-reliance on any single export destination, and incentivising higher-value segments such as complex generics, biosimilars, and R&D-driven innovation where competitive pressures are less price-driven.
Additionally, targeted support such as customs duty rationalisation on critical inputs, enhanced Production Linked Incentive (PLI) schemes for API and advanced manufacturing, and strategic trade diplomacy mechanisms would strengthen domestic value chains and improve global negotiating positions, helping ensure Indian pharma remains robust in the face of protectionist headwinds.
Going forward, the net impact of escalating U.S. tariff pressures on the Indian pharmaceutical industry could be profound if left unaddressed. Indian firms supply a significant share of generic medicines to the U.S. market, nearly half of all generics consumed there and any tariffs that raise the cost of these drugs would compress already thin margins, erode competitiveness, and potentially lead to market share loss to domestic producers or alternative global suppliers.
Beyond immediate commercial effects, this risk could ripple through supply chains, discourage investment in export capacity, and strain bilateral trade relations, undermining the industry’s long-term growth trajectory.
The U.S. tariff uncertainty makes one reality unavoidable: India cannot anchor its pharmaceutical growth strategy to a single market. While the U.S. will remain important, the centre must use Budget 2026 to actively pivot exports toward Europe, Africa, Latin America, and Asia through targeted market-entry support, regulatory alignment, and trade-backed financing. Dedicated export corridors, faster mutual recognition of approvals, and country-specific incentives should replace the current one-size-fits-all approach.
A diversified export base is not optional-it is the only way to insulate Indian pharma from external policy shocks and protect long-term growth.
Equally important is the role of tax administration as an investment signal. For pharmaceutical companies making capital-intensive, multiyear decisions, stability and predictability often outweigh marginal tax benefits. Clear rules, consistent interpretation, and efficient dispute resolution directly influence where and how capital is deployed.
On the direct tax front, incentives for research and development and an accelerated depreciation benefit remains central to the industry’s expectations. Pharmaceutical innovation is capital-intensive and involves long development timelines with uncertain returns. Enhanced tax deductions for R&D expenditure could encourage private investment in the pharma sector.
Simplified withholding tax compliances and reduced tax litigation would further improve ease of doing business in a sector that already operates under significant regulatory oversight.
Indirect taxation, particularly under the GST regime, continues to pose operational challenges. A persistent concern is the inverted duty structure, where taxes on inputs are higher than those on finished formulations. This leads to accumulation of input tax credits and strains working capital.
The government is reportedly considering the long-standing industry demand to allow refunds of accumulated GST credit on account of input services. If implemented, this measure would address a significant credit blockage, enhance working capital efficiency, and foster greater compliance within the GST framework.
The industry expects Budget 2026 to address this issue either through rationalisation of GST rates on key inputs or mechanisms through inclusion of input services in inverted duty refund. Timely refunds would ease liquidity pressures and improve financial efficiency across the value chain.
There is also a strong case for rationalising customs duties on Specialised machinery, laboratory equipment, and testing infrastructure. Such measures would support investments in advanced manufacturing and help Indian companies meet stringent global regulatory standards Budget 2026 is now an opportune time to turn potential into power and take India’s pharma journey to its next chapter, -from manufacturing strength to innovation leadership, from affordability to global quality, and from dependency to self-reliance.
If the government delivers on these expectations, India’s pharma sector could truly become not just the world’s pharmacy-but also the world’s innovation engine.
