Exchange-rate Depreciation and Exchange-Rate Pass-through to Pharmaceutical Prices in India (2014–2024)

Abstract

The Indian pharmaceutical sector, heavily reliant on imported Active Pharmaceutical Ingredients (APIs), is sensitive to USD/INR fluctuations, which raise production costs when the rupee weakens. While exchange rate changes quickly affect producer costs, consumer prices adjust more slowly due to distribution margins, retail markups, and market stability considerations. The focus of this research paper is how much exchange rate pass-through occurs (ERPT) in the realm of Indian pharmaceuticals from 2014 through 2024. While this geographic area has a great deal of global competition with its finished pharmaceutical products, the industry is also heavily reliant upon using APIs from foreign sources, thus having its costs of production very much subject to changes in the USD/INR exchange rate. Therefore, by using annual aggregated time series data, several models, specifically baseline regressions, dynamic lags, and interaction terms with respect to imports, have been employed to assess the degree or value of ERPT to both wholesale pharmaceutical prices (WPI–Pharmaceuticals) and retail medicine prices (CPI-Medicines). In general, ERPT has been present at considerable rates; however, between levels of producer versus consumer prices, ERPT is observed to transmit at a greater degree and at a faster rate for producers compared to consumers. Import dependence also magnified the impact of ERPT at the producer level. All results indicated sustained levels of reliability upon further determination of validity.