Higher wages in India eating quickly into low-cost generic manufacturing model

Is the law of unintended consequences about to be visited on the drug industry in India, much as it already has in neighbor China? There is evidence a middle-class is rising in India, threatening its attraction as a low-priced place for outsourced drug production.

According to human resources people and others interviewed by The Hindu newspaper, wages are rising in the manufacturing side of business. One executive it spoke to, R.C. Juneja, founder and chairman of Mankind Pharma, said his company gives annual raises of 20% and passed along profits earned by its manufacturing facilities.

Now that Mankind expects to complete yet another production plant by the end of the year, this one to specialize in active pharmaceutical ingredients, "it is expected that the incremental hike per year will increase," Juneja said.

India Prime Minister Narendra Modi

Juneja gave much of the credit for the confident atmosphere in the manufacturing sector of India's economy to Prime Minister Narendra Modi's "Make in India" policy encouraging the country to become an even larger producer than it already is and increase its export business.

China used to be the go-to darling of foreign companies, including pharmaceuticals, until the added jobs led to increased wages that in turn drove a growth in the population in the middle class where they become buyers and the nation becomes as much of a buying nation as a producing one.

Multinational drugmakers followed that change, shifting production to countries such as India with lower wages and were happy to turn their corporate eyes to selling in China and its billion-plus population instead.

The trend of higher wages in India's manufacturing industries points to a similar fate in India, although at least the pharma industry has had its problems with India production quality.

The Hindu article did not focus on the ramifications of higher salaries lifting production costs, but some foreign companies already are looking to outsource manufacturing to Indonesia, Thailand, Vietnam and even Malaysia for low-wage production.

- here's the story from The Hindu