India's pharmaceutical market currently holds ninth position in the world market for pharmaceuticals with a 1.5% share. The market was valued at more than $3 billion last year (1998). At its annual growth rate of 15% (almost double the world's 6% annual growth rate), this market is expected to reach $6 billion by 2001 and should more than double to $13.3 billion in 2006. India's official OTC market currently stands at over $130 million, and the industry's heart disease sector is expected to grow from $90 million now to more than $350 million in 2005.

Existing demand in the Indian pharmaceutical sector stands at about $4 to $5 billion, and is forecast to increase at an annual rate of 15 - 20% in the future. Nevertheless, average per capita expenditure on pharmaceuticals in India is only $3 -- compared to $412 in Japan, $222 in Germany and $191 in the US. This is due in part to the prevalence of alternative healing methods in India, such as ayurvedic medicine and homeopathy, but also because prices for drugs have been kept artificially low by the Indian government. In fact, India's pharmaceutical industry is one of the most highly regulated industries in the country. Price controls have a strong effect on profitability in the industry, and weak patent protection poses a long-term danger to investment in India's drug market. Foreign firms also find it difficult to function in India due to arbitrary Bureau of Industrial Cost and Pricing (BICP) pricing changes, arbitrary local FDA decisions, high import duties (about 42%) and complex import procedures.

However, while the pharmaceutical sectors in India will most likely stay regulated in the short term, there are plans for reform. The sheer size and growth of India's domestic pharmaceutical industry is making it increasingly difficult for the government to regulate prices for every single firm, and pressure from the World Trade Organization is also speeding up discussions within the national government to improve patent protection. As a result, foreign pharmaceutical firms can expect improved market opportunities in India's enormous drug market over next several years.

The Indian pharmaceutical industry is highly fragmented -- there are now more than 20,000 domestic manufacturers of end-use pharmaceuticals, particularly because of the industry's low capital requirement and the lack of product patents. Only about 300 of these are in the organized sector. This structure causes intense competition, especially in the bulk drug markets, with profitability falling as demand expands.