While India’s domestic pharmaceutical market looks set for a strong performance, the outlook for Indian drug manufacturers in the crucial U.S. market is considerably more cautious. After a robust 9.9% revenue increase in FY25, growth is expected to slow down. This deceleration is primarily attributed to persistent price erosion and a decline in sales of lenalidomide, a vital revenue generator in previous fiscal years. For context, lenalidomide is a medication commonly used to treat a specific type of myelodysplastic syndrome (MDS) that causes low red blood cell counts.
Adding to the challenges, regulatory oversight from the U.S. Food and Drug Administration (USFDA) continues to be a significant concern. Indian companies frequently face warning letters and import alerts, which can delay product launches and result in steep penalties for failure to supply. Furthermore, addressing these compliance issues incurs substantial costs, including consultancy fees and increased demands on management’s time, all of which put a strain on profit margins.
Further clouding the horizon for Indian pharmaceutical exporters are recent trade measures. The U.S. imposed 50% tariffs on Indian imports across various sectors, effective August 27, 2025. Although pharmaceuticals have been spared so far, their potential inclusion remains a critical factor to monitor. Additionally, a proposed ‘most favored nation’ (MFN) pricing policy by the U.S. government, aimed at reducing global drug price disparities, could further impact Indian companies. Kinjal Shah, Senior Vice President & Co-Group Head at ICRA, highlighted these concerns during a webinar titled ‘Industry at a Crossroad: Navigating Global Challenges and Local Opportunities’ on the Indian pharmaceutical industry.
In stark contrast, the domestic market is proving to be a key driver of growth. Strategies such as expanding sales teams, boosting the productivity of medical representatives, broadening rural distribution networks, and introducing new products are projected to fuel an 8-10% revenue increase in the domestic sector for FY2026. ICRA’s analysis of sample companies reveals a consistent double-digit expansion (10.3% year-on-year growth in Q1 FY2026, following 11.6% in FY2025). This growth is largely driven by companies gaining market share in chronic disease therapies, a steady stream of new product introductions, and regular price adjustments, even as volume growth for branded generics remains somewhat muted due to increasing genericization.
Moreover, recent initiatives by the Indian government are set to improve healthcare accessibility and affordability. These include GST exemptions and rate reductions on specific life-saving and general medicines, as well as some medical supplies and equipment, aligning with the nation’s broader goals for healthcare inclusion.
Overall, India’s pharmaceutical sector is anticipated to achieve moderate growth in the current fiscal year. However, this positive trajectory will be tempered by prevailing global economic headwinds and regulatory uncertainties, particularly impacting its largest export market.
Specifically, ICRA’s report projects that revenues for its analyzed companies will grow by 7-9% in FY2026. This growth will be underpinned by strong performances: 8-10% in the domestic market and 10-12% in Europe. Conversely, the U.S. market is expected to see a more modest expansion of 3-5%, a slowdown from nearly 10% in FY2025. Despite these varying regional performances, the operating profit margins (OPM) for ICRA’s sample entities are expected to remain stable at 24-25% in FY2026, consistent with the 24.6% recorded in FY2025. This stability is supported by favorable raw material costs, enhanced operating leverage, and a growing emphasis on high-margin specialty products.