Summary
The Indian pharmaceutical sector is projected to achieve a moderate revenue growth of 7–9 per cent in fiscal year 2026 (FY26), according to ratings agency ICRA, despite facing significant challenges in its largest export market, the United States. The forecast reflects a complex global and domestic landscape where regulatory uncertainties, pricing pressures, and trade-related issues are constraining growth in the US market, leading to an expected slowdown in revenues to 3–5 per cent in FY26 from nearly 10 per cent in FY25. In contrast, the domestic Indian market and European region are anticipated to exhibit robust expansions of 8–10 per cent and 10–12 per cent respectively, supported by strategic initiatives such as sales force expansion, new product launches, and increased investments by multinational companies.
This growth outlook comes amid structural shifts within the Indian pharmaceutical industry, which is increasingly emphasizing research and development (R&D), particularly in complex molecules and specialty products. Companies are raising R&D expenditure to around 6–7 per cent of revenues, aiming to sustain competitive advantages and improve operating profit margins, which ICRA forecasts to remain resilient at 24–25 per cent in FY26. Favorable raw material prices and improved operating leverage further underpin profitability despite the challenging external environment.
However, the sector contends with several prominent controversies and risks, notably regulatory and pricing uncertainties in the US market. The proposed US “most favoured nation” pricing policy, pricing constraints, compliance costs, and potential tariff implications contribute to an uncertain outlook for Indian pharmaceutical exporters. Additionally, drug pricing and reimbursement challenges globally—exacerbated by complex supply chains and evolving policies like the Medicare Drug Price Negotiation Program—pose ongoing hurdles to revenue growth and market access.
Overall, ICRA’s forecast highlights the Indian pharmaceutical sector’s resilience and adaptability amid external headwinds, driven by diversified market growth, strategic innovation, and regulatory navigation. The sector’s performance in FY26 will be closely watched by stakeholders ranging from manufacturers and payers to policymakers and patients, as it balances growth ambitions with increasing global complexities.
Background
The Indian pharmaceutical sector has been under close observation due to its significant role in the global healthcare landscape and its expanding domestic market. The TOI Business Desk focuses extensively on the industry, providing in-depth analysis, exclusive reports, and coverage of economic trends that impact both businesses and economies worldwide.
Ratings agency ICRA has highlighted the challenges and opportunities faced by the sector as it navigates complex global and domestic dynamics. While the US market—the largest export destination for Indian pharmaceutical companies—faces headwinds such as regulatory uncertainties and pricing pressures, the domestic and European markets are projected to experience robust growth. Specifically, ICRA forecasts 8-10 per cent growth in India’s domestic pharmaceutical market and 10-12 per cent growth in Europe for FY26, despite the cautious outlook on the US market where revenues are expected to slow following a 9.9 per cent growth in FY25.
The Indian pharmaceutical industry is also undergoing structural changes with increased emphasis on research and development (R&D), particularly focusing on complex molecules and specialty products. Companies are ramping up R&D expenditure to 6-7 per cent of their revenues to maintain competitive advantages and support sustainable growth. This strategic pivot is expected to bolster operating profit margins, which ICRA projects to remain resilient at 24-25 per cent in FY26, supported by favorable raw material prices, improved operating leverage, and an increasing share of specialty product portfolios.
ICRA maintains a stable outlook on the sector, citing steady revenue growth, strong liquidity, healthy balance sheets, and robust earnings trajectories. Its analytical reports provide detailed insights on rating considerations and sectoral performance, reinforcing the credibility and depth of its market assessments. This evolving landscape sets the context for the projected revenue growth and sector performance forecast for FY26 amidst prevailing global challenges.
ICRA’s Forecast for FY26
Ratings agency ICRA projects a moderate revenue growth of 7-9 per cent for the Indian pharmaceutical sector in FY26, despite challenges posed by regulatory uncertainties and tariffs affecting the US market, which remains the industry’s largest export destination. The forecast highlights differentiated growth across key markets, with the domestic market expected to expand by 8-10 per cent and Europe by 10-12 per cent, following a robust 18.9 per cent increase in Europe during the previous year.
In contrast, growth in the US market is anticipated to moderate significantly to 3-5 per cent in FY26, a slowdown from nearly 10 per cent growth achieved in FY25. This cautious outlook for the US is attributed to pricing pressures and falling sales amid global headwinds and regulatory challenges.
The domestic market growth is expected to be supported by several strategic factors, including sales force expansion, enhanced productivity of medical representatives, deeper rural distribution, and the launch of new products. Companies in ICRA’s sample have already demonstrated strong performance, with double-digit growth of 10.3 per cent year-on-year recorded in the first quarter of FY26, following an 11.6 per cent increase in FY25.
Operating profit margins for pharmaceutical companies are forecasted to remain resilient at 24-25 per cent in FY26, maintaining levels close to 24.6 per cent in FY25. This stability is expected to be driven by favorable raw material prices, improved operating leverage, and a growing contribution from specialty products.
Drivers of Revenue Growth
The pharmaceutical sector’s revenue growth for FY26 is expected to be driven primarily by robust expansion in the domestic Indian market and steady gains in Europe, despite a cautious outlook for the US market. ICRA projects an 8-10 per cent revenue increase in the Indian market, supported by strategic initiatives such as sales force expansion, improved productivity of medical representatives, deeper rural distribution, and the introduction of new products. Companies within ICRA’s sample have already demonstrated strong performance, with a 10.3 per cent year-on-year growth in the first quarter of FY26, following an 11.6 per cent growth in FY25, largely driven by market share gains in chronic therapies, new product introductions, and regular price hikes despite subdued volume growth for branded generics.
In Europe, revenue growth is anticipated to reach 10-12 per cent in FY26 after an 18.9 per cent jump the previous year, propelled by higher investments from multinational companies, increasing adoption of outsourced services, and a supportive regulatory framework. Rising demand for innovative therapeutics, continuous research activities, and growth in over-the-counter (OTC) drug segments due to self-medication trends and cost-effective treatment options further contribute to this momentum.
The US market presents a more cautious scenario with expected growth of only 3-5 per cent, a slowdown from nearly 10 per cent in FY25, owing to pricing pressures, regulatory challenges, and the impact of the US government’s proposed “most favoured nation” pricing policy. Additionally, uncertainties related to tariffs on Indian imports and compliance issues delay market entry and increase remediation costs, thereby straining profit margins for Indian exporters.
Other key factors supporting growth include favorable raw material prices, improved operating leverage, and a rising share of specialty products, which help maintain resilient operating profit margins at 24-25 per cent in FY26, consistent with the previous year. Government measures such as GST exemptions and rate cuts on select lifesaving drugs and medical supplies are also expected to enhance affordability and align with India’s broader healthcare inclusion agenda, thereby bolstering domestic demand.
Moreover, the speedy introduction of generic drugs into the market is anticipated to benefit Indian pharmaceutical companies by enhancing competitiveness and expanding market access. Overall, the combination of strategic market expansion, regulatory support, and product innovation forms the backbone of the expected revenue growth in the pharmaceutical sector for FY26.
Challenges Impacting the Sector
The pharmaceutical sector faces several significant challenges that impact its growth and profitability, particularly in relation to the US market. Pricing pressures and regulatory uncertainties remain primary concerns that could slow revenue growth despite earlier gains. According to ICRA, although revenues grew by 9.9% in FY25, the outlook for the US market is cautious due to increasing pricing constraints and declining sales volumes. Furthermore, compliance issues related to regulatory standards not only delay market entry but also lead to penalties and additional remediation costs, which strain profit margins across the industry.
Another major challenge arises from geopolitical and trade factors. The recent imposition of 50% tariffs by the US on Indian imports across various sectors presents risks, even though pharmaceuticals have so far been exempted from these tariffs. Additionally, the US government’s proposal of a “most favoured nation” pricing policy could impose further pressure on Indian drug exporters, potentially impacting their competitiveness and market access in the US.
Drug pricing and reimbursement constraints also represent a critical hurdle for the sector globally. These constraints influence how companies balance revenue generation with ensuring patient access to new medicines. Industry decision-makers have identified drug pricing and reimbursement as the biggest concern for the pharmaceutical industry in the near term, surpassing geopolitical conflict and inflationary pressures. The complexity of the US drug supply chain, involving multiple stakeholders such as manufacturers, wholesalers, pharmacies, pharmacy benefit managers (PBMs), and payers, adds to the difficulty of controlling drug prices.
Policy changes such as the Medicare Drug Price Negotiation Program, established under the Inflation Reduction Act, are expected to further influence the sector. This program mandates negotiated maximum fair prices for selected drugs and requires Medicare Part D plans to cover these drugs comprehensively, potentially improving access but also impacting pricing dynamics. The evolving formulary controls and increasing influence of payers and PBMs in managing drug costs are anticipated to reshape market strategies going forward.
Taken together, these challenges highlight the complex and evolving landscape the pharmaceutical sector must navigate, particularly as it contends with market-specific regulatory frameworks, pricing reforms, and international trade policies.
Impact on Stakeholders
The pharmaceutical sector’s projected revenue growth of 7-9% for FY26, as forecasted by ICRA, carries significant implications for various stakeholders including pharmaceutical companies, insurers, patients, and policymakers. Pharmaceutical companies continue to invest heavily in research and development (R&D) with the expectation of future profits, which hinge on factors such as anticipated global revenue, manufacturing and marketing costs, R&D expenses, and regulatory policies impacting drug supply and demand. However, drug pricing and reimbursement constraints remain a critical challenge for the industry, requiring companies to strategically balance revenue generation with ensuring patient access to medicines across multiple countries. Early integration of evidence to support commercial strategies is essential during the development cycle to address these constraints effectively.
Pharmacy benefits managers (PBMs) act as intermediaries between pharmaceutical manufacturers and insurers, negotiating discounts and rebates. The rapid consolidation of the PBM market enhances their negotiating power, which can impact drug pricing and patient access. For instance, policies mandating inclusion of pharmacies in Medicare Part D plans based on “reasonable and relevant” contract terms exemplify regulatory efforts to ensure fair pharmacy participation. Additionally, there is potential for health plans and PBMs to better support physicians in prescribing cost-effective medications by designing high-value formularies that emphasize comparative health benefits alongside overall patient care costs.
Patients stand to benefit from optimized market access initiatives that pharmaceutical manufacturers are adopting to support brand value while minimizing out-of-pocket costs. Such end-to-end commercialization solutions help facilitate broader therapy access, an important consideration especially as global health focus shifts beyond COVID-19 to other communicable and non-communicable diseases. Furthermore, credible research and credit analysis by entities like ICRA provide transparency and insights that help stakeholders navigate the evolving pharmaceutical landscape, including emerging governance trends and sustainability shifts within retail non-banking financial companies that support the sector’s ecosystem.
Sector Response and Strategic Initiatives
The pharmaceutical sector is actively responding to the challenges posed by regulatory uncertainties and tariffs in its largest export market, the United States, by focusing on strategies that bolster growth in other regions and enhance domestic market performance. One key initiative is the expansion of sales forces and improvement in the productivity of medical representatives, which, along with deeper rural distribution and the launch of new products, is projected to support an 8–10 per cent revenue growth in the domestic Indian market for FY2026.
In addition to these market penetration efforts, companies are increasing investments in research and development (R&D) to drive innovation and future profitability. Spending on R&D and the introduction of new drugs have risen over the past two decades, with pharmaceutical companies evaluating anticipated returns based on global revenue potential, R&D costs, and relevant drug policies. This sustained commitment to R&D aligns with the sector’s goal to cater to lucrative demands across Europe and other regions, where rising investments by multinational companies and supportive regulatory frameworks are expected to fuel growth.
Moreover, the sector is optimizing market access through comprehensive commercialization solutions that support brand value among payers while facilitating patient access to therapies with minimal out-of-pocket costs. These efforts include managing drug formularies that encompass both generic and brand-name products, thereby enhancing reimbursement and affordability. Geographic diversification is also a strategic focus, with Europe forecasted to achieve 10–12 per cent revenue growth and other regions such as North America, Latin America, and parts of Africa and the Middle East increasing spending significantly, driven by both population growth and a shift towards higher-cost specialty drugs.
Comparison with Previous Forecasts and Trends
ICRA’s current forecast for the pharmaceutical sector projects a revenue growth of 7-9 per cent for FY26, reflecting a moderate slowdown compared to previous years. In FY25, the domestic market experienced double-digit growth, with a 10.3 per cent year-on-year increase in the first quarter and an overall 11.6 per cent rise for the fiscal year. This robust growth was driven by factors such as sales force expansion, improved productivity of medical representatives, deeper rural distribution, and new product launches.
Regionally, Europe continues to demonstrate strong growth potential, with ICRA expecting 10-12 per cent gains, supported by higher investments from multinational companies, increased adoption of outsourced services, and a supportive regulatory framework that encourages innovative therapeutics and research activities. In contrast, the US market outlook is more cautious due to pricing pressures, regulatory uncertainties, and global headwinds, leading to an anticipated moderation in sales growth to 3-5 per cent, down from nearly 10 per cent growth achieved in FY25.
Profitability metrics have remained resilient despite these market fluctuations. Operating profit margins are expected to hover around 24-25 per cent in FY26, similar to the 24.6 per cent recorded in FY25. This stability is attributed to favorable raw material prices, improved operating leverage, and a rising share of specialty products within company portfolios.
Additionally, long-term pricing trends indicate a divergence between list and net prices in the pharmaceutical sector. A 2023 study of large manufacturers found that net prices are on average 52.1 per cent lower than list prices and have been growing more slowly than overall inflation, with net prices actually declining over the past seven years. This trend reflects increasing pricing pressures and contributes to the cautious outlook for certain markets, especially the US.
The content is provided by Blake Sterling, 11 Minute Read
