Under the country's 25-year process patent system, Indian companies have perfected their scientific, technical and manufacturing skills to match the requirements of global drugmakers that are increasingly seeking to offshore many manufacturing activities previously performed in-house, while India has absorbed 22 per cent of the global generics market.
But India's still relatively closed healthcare market means that it is easier for Indian firms to win larger generics market shares overseas than at home, so new government initiatives are required to enable the majority of the country's more than 1bn citizens to access the medicines they want.
Indeed, despite its huge population, India currently represents only $6bn of the $550bn global pharmaceutical industry but its share is increasing at 10 per cent a year, compared to 7 per cent annual growth for the world market overall.
Moreover, India's leading drug manufacturers are becoming global players, utilising both organic growth - through the gradual development of their business - and mergers and acquisitions as they seek to boost their presence in existing markets and open up new ones.
According to the German Chemicals Association, in 2005, India's top ten pharmaceutical companies were Ranbaxy, Cipla, Dr. Reddy's Laboratories, Lupin, Nicolas Piramal, Aurobindo Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt and Aventis Pharma. Nine of these companies were domestically owned, compared with just four in 1994.
These Indian drug manufacturers currently export their products to more than 65 countries worldwide, with their largest customer being the US, where generic prices have not been rising because of increased competition, particularly because of the rise of authorised generics produced by major drug producers, new mid-sized players, Chinese and Eastern Europe manufacturers, and fully integrated generics firms, which are less reliant on Indian "back-end" businesses.
Europe, on the other hand, holds more promise according to the report, as Dr Reddy's recent acquisition of Betapharm of Germany for $570m demonstrates.
Such consolidation in the global generics industry, where the top ten players account for 27 per cent of the world market, is widely expected, and, following Teva's purchase of IVAX and the takeover of Hexal by Novartis's unit Sandoz, a vast gap has been created between these firms and the rest of the industry.
Ranbaxy is widely believed to be seeking to attain the third position through an alliance with a major company and Wockhardt and Dr Reddy's are also particularly active in terms of acquisitions in the generics sector.
Back home, where 700,000 English-speaking scientists and engineers graduate every year, including 122,000 chemists and chemical engineers, and pharmaceutical production costs are almost 50 per cent lower than in Western nations, manufacturing is booming.
Worldwide revenues for pharmaceutical industry contract manufacturing and research services (CRAMS) totalled $100bn in 2004 and will grow at an average annual rate of 10.8 per cent to reach $168bn by 2009, according to analysts at Frost & Sullivan.
Within this total, the global market for contract manufacturing of prescription drugs is estimated to increase from a value of $26.2bn to $43.9bn, although the over-the-counter medicines will show the fastest growth.
Thus, the Asian region has recently been challenging North America and Europe's traditional domination of the global pharmaceutical contract manufacturing market and India and China could potentially account for 35 per cent to 40 per cent of the outsourced market share active pharmaceutical ingredients, finished dosage formulations and intermediates, the report suggests.
Yet if internal demand in India increases, the country has the potential to become the region's hub for pharmaceutical and biotechnology discovery manufacturing and research.
"In order for this to happen, it is imperative that the regulatory environment continues to improve," Ekkehart Hansmeyer, KPMG's head of pharmaceuticals in Germany, writes in the report.
"Otherwise, India needs to look to the achievements of China, where the government's strong commitment pro-industry policies have produced a positive environment that not only offers drug manufacturers a product patent regime but also, and crucially, data protection - India's continuing failure to do so needs to be urgently rectified."
In this aspect this year is decisive; a draft of the government's National Pharmaceuticals Policy for 2006 containing proposals for far-reaching initiatives aimed at boosting the domestic industry's global competitiveness, as well as improving the population's access to medicines, was published in January.
However, patent protection remains the burning issue for drug manufacturers and in this area things look uncertain, as a new product patent system was introduced in January 2005 which may spell the end for the domestic sector's smaller players, while for others it could represent unprecedented opportunities for innovation.
Although soaring costs of R&D and administration are persuading drug firms to move more and more of their discovery research and clinical trials activities to the subcontinent or to establish administrative centers there, it is imperative that drug pricing policies are tightened and intellectual property rights secured further if India's domestic market is to take off, the report concludes.