If the Central Government goes ahead with the proposed move of the Central Board of Excise and Customs (CEBC) to levy excise duty on drugs based on its maximum retail price (MRP), the contract manufacturing small scale units would be the worst hit, fear SSI industry circles.
Sources told Pharmabiz.com that more than 25 per cent of the 19, 000-odd drug manufacturers in the country undertake contract manufacturing for large scale drug makers, and the industry which is already in doldrums would suffer further by losing lean margins enjoying at present.
"If the Customs and Central Excise Department implements recommendations of the Central Excise Advisory Board on this, a contract manufacturer supplying a drug to a multinational at Rs.20 may be priced at Rs.36, if the company is selling that product for Rs.100. That means the contract manufacturer will have to pay Rs. 16 (excise duty of 16 per cent) on the drug, instead of the present excise duty of Rs.3.20," elaborated a senior SSI source.
Sources aver the move would ultimately cause exorbitant increase in prices of many drugs, as a majority is outside the purview of price control. This is mainly because most of the companies normally offer about 10 per cent margins to the wholesalers, 20 per cent to the retailers and about 5 per cent to the C&F agents, besides earmarking a good percentage for other marketing expenses and promotions.
In such a scenario, the drug manufacturers may not be able to absorb the additional levy, and may prefer to cut down margins of the contract manufacturers, than passing the burden on to the customer and other important marketing factors in the drug distribution chain, fear SSI circles.
When contacted, Confederation of Indian Pharmaceutical Industries (CIPI) Chairman T.S. Jaishankar said the association would vehemently oppose the move that would be death knell to many units.
Pharmabiz earlier had reported the Indian Drugs Manufacturers Association (IDMA) and Organisation of Pharma Producers of India (OPPI) had opposed the move in a meeting called by the Department of Chemicals and Petrochemicals to discuss the suggestion, and was in favour of status quo with regard to the levy of excise duties.