Following the introduction of MRP based excise regime, the leading drug manufacturers in the country have completely deserted their contract manufacturers, leaving behind a minimum 100 contract manufacturing units in different parts of the country with an uncertain future.
Barring Kerala, which has hardly any contract-manufacturing units, the all other South Indian states are badly affected as far as the contract manufacturing business is concerned since the MRP based excise duty notification during second week of January 2005.
At least six to ten Chennai-based companies, with their annual contract manufacturing turnover ranging from Rs 10 crore to Rs 30 crore from about top 20 companies, have been officially instructed by their respective clients to stop production and supplies until any further communication.
The situation in Karnataka is alarming as at least 20 of the 35 contract- manufacturing companies in and around Bangalore have been forced to stop production completely. Same is the case with the manufacturing hub of Hyderabad, where most of the units have been officially instructed by their business providers to discontinue supplies, B Sethuraman, secretary, Federation of the South Indian Pharmaceutical Manufacturers Association (FOSIPMA) and president, Pharmaceutical Manufacturers Association of Tamil Nadu (TN PMA) told Pharmabiz.
T S Jaishankar, chairman, Confederation of Indian Pharmaceutical Industries (CIPI-ssi) said, "The situation is same in all parts of the country. Reports are coming from states like Gujarat, Maharashtra and Rajasthan that contract manufacturing SSI units have been instructed to discontinue production. Most of these units have invested several crore of rupees to set up infrastructure conforming to world standards, mainly WHO GMP, and in some cases even US FDA complainant facilities." The 100 odd contract manufacturers and their loan licensees are estimated to have an annual business turnover of about Rs 3000 crore, and this segment of the industry has come to total standstill, said Jaishankar.
Sources said many of the companies had orally instructed their contract manufacturers to discontinue supplies after the ongoing batches, immediately after the notification. Within a week or so, almost all the companies got official letters from respective business providers citing their lack of interest in providing business any further. However, the suffered companies are yet to publicly accept that they have lost business from their business partners, anticipating roll back of MRP based excise and future business prospects from those big players.
Sources said about 25 per cent of the SSI units, fully or partially, are engaged in undertaking contract manufacturing business for large units. Big players mainly preferred third party manufacturing arrangements with SSI units, to lessen their excise burden. With the new excise notification, excise for such arrangements will not be based on actual sales price, but will be 65 per cent of MRP. With the new excise notification, the big players have lost interest in third party manufacturing, and thus deserted the units.
Even if the units have orders at hand, they will not be able to meet the demands in the present condition. With the notification, the SSI units will exhaust the Rs 1 crore excise exemption benefit while earning their job charges on actual value of goods that is Rs 25 lakhs only.