Currently around 67 per cent of India's population or 742 million people live in rural areas, but rural markets contribute to only 17 per cent of the overall pharma market's sales', consulting firm Pricewaterhouse Coopers (PwC) pointed out in its latest report, 'India's Pharma Inc: Capitalising on India's growth potential'.
The report further highlights that this low penetration represents a huge opportunity for the pharmaceutical companies to expand in the rural markets, which are expected to be the growth drivers for the domestic pharma industry in the coming years. "India's domestic pharma market is vlaued approximately at $12billion in 2010, and has shown a strong growth of 21.3 per cent for the 12 months ending September this year. We estimate that over the next 10 years, the domestic market will grow to $49 billion, at a compounded annual growth rate (CAGR) of 15 per cent", said Sujay Shetty, director, leader-pharma life sciences, PwC. He added that "If aggressive growth drivers kick in, the market can also grow at the rate of 20 per cent and touch a $74 billion size".
The domestic pharma industry is indeed witnessing trends of increasing penetration into tier-II to tier-VI and rural markets. As per IMS Health, peri-urban markets account for 38 per cent of total industry sales, being valued at $3.4 billion, while rural markets account for 17 per cent of total industry sales, being valued at $2 billion in 2010.
While the industry players admitted that there lay huge potential for future expansion into the rural markets of the country, a new model for distribution and delivery is required to actually achieve that feat. Pankaj Patel, chairman and managing director, Cadila Healthcare Ltd, said, "Companies usually follow a model of increasing sales and higher penetration, however, there is yet to be an effective distribution model to tap the rural markets. One needs to innovate and improvise on existing models like mobile medical vans etc".
Shetty highlighted that, "Currently around 300 million people in India are covered under health insurance, and that number is likely to double by 2020. As the insurance cover goes up, newer healthcare management models will evolve". The PwC report says that with the Indian middle class expanding rapidly, together with affordability of medicines also rising, an increased percentage of disposable income is being now spent on healthcare.
One key challenge before the pharma industry for expansion into rural areas is low government spending on healthcare. 'India has a low level of government spending on healthcare, at one per cent of the GDP, putting the country in the lowest 20 per cent of those that contribute significantly low levels of public spending to health. Business Monitor International forecasts that healthcare expenditure in India will increase from $49.7 billion to $86.9 billion between 2009 and 2014, a rise of 75 per cent', the PwC reports quotes. However, the affordibility of medicines had to increase, besides a growth in the over-the-counter (OTC) segment of drugs. Surinder Singh, drugs controller general of India, government of India, said, "Pricing under the Drugs Price Control Order (DPCO) has to be looked into. Branded generics widely differ in prices, while having the same chemical composition. Another step would be to bring more drugs under the OTC segment. But, this is not going to be an easy exercise, as there would be p rotests from chemists and druggists associations. Whether one tries to reach the rural markets through mobile pharmacy vans or distribute OTC drugs through post offices in rural and semi-urban areas, we first need to have a wide basket of OTC drugs".
At the moment, around 90 per cent of India's pharmaceutical market is made up of branded generics, and the segment is estimated to grow at 15-20 per cent CAGR for the next five years. Generic generics and patented products' contributions to the market as a whole is currently very low. The PwC report says that it does not expect the above two segments to grow significantly in the next five years, the market will continue to remain comprised predominantly of branded generics.
