For decades, trade negotiations were primarily about tariffs and countries negotiated market access by curtailing customs duties and dismantling quotas. In pharmaceuticals, that world has largely disappeared. Today, a medicine may be duty-free and go to a country and still never get to a patient. The real barriers are now in the approval process, inspection protocols, technical standards, manufacturing certification, and regulatory processes, and vary from one country to the next. India's pharmaceutical industry knows this more clearly than any other. It is internationally one of the biggest producers of generic drugs and sells to more developed and developing markets and has in the past shown manufacturing capability. But many Indian companies continue to struggle with the very same problem when trying to expand overseas, not because of tariffs but because of the regulatory burden. And NITI Aayog’s proposal to have a pharmaceutical chapter in future free trade agreements is something to discuss, particularly if it continues to be in the making. It shows a wider sense that trade policy can no longer be divorced from regulatory policy. In many industries and particularly pharmaceuticals, the two are now inseparable.
The NITI Aayog has recommended that India adopt a standardised pharmaceutical chapter as a basis for future trade negotiations. At first glance, the idea seems technical. It looks at regulatory cooperation, inspections, product approvals, standards alignment, and institutional levers to address regulatory concerns. But the proposal is more important than it may appear at first glance. India has typically approached trade negotiations from a market-access perspective. The current recommendation represents a shift towards sector-specific negotiating strategies in which India’s competitive advantages are backed up with tailored treaty terms. In that sense, India is asking a simple but important question: If pharmaceuticals are the most competitive sector in the country and so much so in the world, why are trade negotiations not more representative in this context? And so, the proposal is an exercise not only in design but an approach to trade diplomacy that is being re-oriented.
The pharmaceutical industry has long argued that reducing tariffs is not enough to generate commercial value if regulatory bottlenecks remain in place. A manufacturer that takes years to get through duplicative inspections, inconsistent standards, or lengthy approval is likely to get little from preferential tariff treatment. If future trade deals have been successful at creating regulatory predictability, the impact will be great. And for established companies, more quickly product launches and lower compliance costs could be a boon. For mid-sized exporters, it could lower barriers to entering new jurisdictions. Investors will have more confidence in long-term export strategies. That said, regulatory collaboration is never a one-way street. As India seeks to have international acceptance of its regulatory systems, its trade partners should expect the same level of transparency and consistency in domestic policy and oversight. The result is a gradual shift in industry expectations. Compliance excellence may come to be less a competitive yardstick and more just the reality of being part of global markets. There would be a development that would eventually strengthen the sector, but it would also require significant investment in quality systems, governance structures, and regulatory preparedness.
{{/usCountry}}The pharmaceutical industry has long argued that reducing tariffs is not enough to generate commercial value if regulatory bottlenecks remain in place. A manufacturer that takes years to get through duplicative inspections, inconsistent standards, or lengthy approval is likely to get little from preferential tariff treatment. If future trade deals have been successful at creating regulatory predictability, the impact will be great. And for established companies, more quickly product launches and lower compliance costs could be a boon. For mid-sized exporters, it could lower barriers to entering new jurisdictions. Investors will have more confidence in long-term export strategies. That said, regulatory collaboration is never a one-way street. As India seeks to have international acceptance of its regulatory systems, its trade partners should expect the same level of transparency and consistency in domestic policy and oversight. The result is a gradual shift in industry expectations. Compliance excellence may come to be less a competitive yardstick and more just the reality of being part of global markets. There would be a development that would eventually strengthen the sector, but it would also require significant investment in quality systems, governance structures, and regulatory preparedness.
{{/usCountry}}Businesses would be mistaken if they think this is a long-term policy debate. Trade talks take so long, Business strategies don’t. For pharmaceutical companies, the first priority is to develop internal compliance systems. As regulatory cooperation grows, problems that were localised may have greater commercial implications. Secondly, companies should start to see trade policy as a strategic business issue as opposed to government affairs. The commercial opportunities of future FTAs may be as much in terms of regulatory commitment as pricing or manufacturing efficiencies. Third, companies should be on the lookout for talks that are in progress with key export destinations. The language used in pharmaceutical chapters would affect inspection procedures, approval paths, and dispute resolution mechanisms. Fourth, industry should take part in policy consultations. Most trade deals will only be signed, and then the chance to influence outcomes has passed. Finally, pharmaceutical companies should prepare for the future when international benchmarking becomes more and more common practice. The standards to be measured against which companies will be judged in a world that will be more global, more transparent, and more demanding.
The NITI Aayog's proposal has broader implications for pharmaceuticals and the global trade system itself. And the next generation of trade agreements will be less about border management and more about regulatory compatibility. They will be not only about whether goods can enter the market but also how quickly, under what circumstances, and through which approval processes they can be taken. For India, this is both an opportunity and a challenge. In sectors where India has global credibility and scale to be able to play in, the challenge is in developing domestic regulatory institutions at the pace of international progress. The proposed model pharmaceutical chapter should not be seen as the latest piece of trade negotiations. It is all part of a larger conversation about India’s place in global value chains, the future of its pharmaceutical industry, and how regulatory trust will shape international commerce. The countries that will shape these rules will shape the next phase of global trade. India’s readiness to have this conversation more openly is in a position of urgency and strategic significance.
(The views expressed are personal)
This article is authored by Prabhat Ranjan, senior director, Nexdigm.