Material Insights · Understanding the Material World

Healthcare services and Pharmaceuticals

Medicines took about a fifth of India's current health expenditure in 2022-23, and households still paid 43.4% of total health spending out of pocket; price ceilings and cheap generics are how the state tries to cut the medicine bill.

Healthcare services (industry) and Pharmaceuticals (industry): 5 relationships.

How they are linked

1. Buys from

Physical flow · ₹8 per ₹100 · Healthcare services buys from Pharmaceuticals

Hospitals, clinics and their pharmacies buy medicines and vaccines for treatment, so drug makers are a major supplier to health services.

  • ₹8 of every ₹100 of Healthcare services output, all rounds (India 2022)
  • ₹6.2 bought directly

This counts only drugs used or sold by providers; much of what patients buy at retail chemists sits outside healthcare services. Price indices are only loosely linked month to month (correlation about 0.18, US PPI) and moved in opposite directions over 12-month spans in the sample (minus 0.55), so the data give no stable price relationship.

Sources: OECD; Material Insights (World Bank, FRED, IMF data)

2. Industry input

Physical flow · Criticality 4 of 5 · Pharmaceuticals to Healthcare services, and Healthcare to Pharmaceuticals

Four enterprise types in healthcare depend on medicines, led by hospitals; two in pharmaceuticals depend on healthcare, as contract research firms need hospital trial sites and pharmacies need prescribers.

Hospitals cannot treat without a steady supply of drugs, so a shortage of a key molecule disrupts care immediately. The reverse dependence is weaker but real: drug makers need doctors to prescribe and hospitals to run clinical trials.

Enterprise types that depend on it:

  • Contract research organisations (CROs): trial sites and patients (criticality 3 of 5)
  • Retail, hospital and online pharmacies: prescribers and hospitals (criticality 2 of 5)

Sources: Material Insights; Material Insights

3. Medicines in health spending

Physical flow · Strong · Medicines are a large share of what India spends on health

Medicines are bought both by providers and directly by patients at pharmacies, so drug prices weigh on household health costs.

  • ₹1.61 lakh crore spent on medicines, 2022-23
  • about 21% pharmaceutical share of current health expenditure, 2022-23
  • 43.4% household out-of-pocket share of total health expenditure, 2022-23 (64.2% in 2013-14)

Of the medicine spend, about ₹1.35 lakh crore was on prescribed drugs and ₹26,670 crore on over-the-counter products. The falling out-of-pocket share reflects more public and insured spending, but households still pay a large part of health costs directly.

Enterprise types that depend on it:

  • Contract research organisations (CROs): trial sites and patients (criticality 3 of 5)
  • Retail, hospital and online pharmacies: prescribers and hospitals (criticality 2 of 5)

Sources: Medical Dialogues

4. Price ceilings

Policy · High in India · The state caps prices of essential medicines

Under the Drug Price Control Order, the regulator fixes ceiling prices for medicines on the National List of Essential Medicines, which limits what hospitals and pharmacies can charge.

  • 928 scheduled formulations with ceiling prices, March 2025
  • about 17% average price cut from NLEM 2022
  • ₹3,788 crore estimated annual saving to patients

The regulator has also set retail prices for more than 3,200 new drugs. Caps lower hospital and patient drug bills but squeeze margins for makers of the listed molecules.

Sources: Medbound Times

5. Generics replace brands

Substitution · Rising · Unbranded generics substitute for branded drugs

The same molecule sold without a brand costs far less, so state-run generic stores give patients and providers a cheaper substitute for branded medicines.

  • 17,990 Jan Aushadhi Kendras operating, 31 December 2025
  • 50 to 80% price gap below branded equivalents

The programme aims for 25,000 stores by March 2027 and its range covered 2,110 medicines and 315 devices and consumables at the end of 2025. Its growth cuts patient costs but can take volume from branded medicines sold by Indian drug makers.

Sources: Elets eHealth

For investors

Key learnings

  1. Medicines take about ₹8 of every ₹100 of health services output and about a fifth of national health spending.
  2. Price ceilings on 928 formulations and growing Jan Aushadhi stores cap returns on many mass-market molecules.
  3. Price caps and generic stores shift income from drug makers and their trade channels to patients, so policy risk sits on mass-market molecules.

What to track

  • NPPA ceiling price notifications: New or revised caps change margins on listed molecules (Monthly · NPPA)
  • Indian pharmaceutical market growth: Shows domestic demand and price effects (Monthly · industry trackers such as Pharmarack)
  • Jan Aushadhi store count and sales: Faster growth means more volume moving to unbranded generics (Quarterly · PMBI, PIB)

For policymakers

Key learnings

  1. Households paid 43.4% of total health spending out of pocket in 2022-23, and medicines are about a fifth of current health expenditure, so drug pricing is central to financial protection.
  2. Ceilings saved patients an estimated ₹3,788 crore a year, but must be balanced against supply of listed drugs.
  3. Generic stores offer 50 to 80% savings; quality assurance and doctor prescribing habits decide their reach.

What to track

  • Out-of-pocket share of health spending: Measures progress on financial protection (Annual · National Health Accounts)
  • Shortages of price-controlled drugs: Signals caps set below viable cost (As reported · CDSCO, state drug controllers)
  • Generic prescribing rates: Shows whether generics are used in hospitals (Annual · health ministry surveys)

India

India spent about ₹1.61 lakh crore on medicines in 2022-23, and the government both caps essential drug prices and ran 17,990 generic stores at the end of 2025 to lower that bill.

Sources

  1. OECD Input-Output Tables 2025 edition, India 2022, OECD
  2. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  3. Industry map: Healthcare services, Material Insights (2026)
  4. Industry map: Pharmaceuticals, Material Insights (2026)
  5. India spent over Rs 1.6 lakh crore on medicines in 2022-2023, reveals NHA report, Medical Dialogues (2025)
  6. Govt's price cut on essential drugs saves patients Rs 3,788 crore annually, Medbound Times (2025)
  7. PMBJP scales generic drug access; 17,990 Jan Aushadhi Kendras operational, target 25,000 by 2027, Elets eHealth (2026)