With the Union finance minister deciding not to effect a reduction in excise duty to 8 per cent and not to increase the turnover limit for SSIs from Rs 1 crore to Rs 3 crore as expected by the pharmaceutical industry, the fate of at least 4500 small drug units is quite uncertain, industry circles feel.
According to the statistics collected by the Confederation of Indian Pharmaceutical Industries (CIPI-ssi), the 6000 odd SSI pharma units in India together contribute a turnover of Rs 7000 crore to the pharmaceutical industry. Of this, 4000 units are dependent on propaganda-cum-distribution model of business, and only 825 units undertake direct marketing. About 550 units operate in the field of government supplies and exports, and 625 units are dependent only on contract manufacturing.
Of this, 625 contract manufacturers will be immediately wiped out of the business, say the sources. The so-called relief in the budget in the form of increasing the benefit on turnover exemption limit to Rs 4 crore per year is not going to redress the problems of SSIs due to the MRP based excise which effected 260 per cent hike in excise duty. (As per the budget, the SSI units will now have only two options, either full exemption on the first clearance of Rs 1 crore or normal duty on the first clearance of Rs 1 crore with CENVAT credit).
While business has become unviable for the PCD players as they lack resources to entrust own marketing and distribution network, the contract manufacturers would be forced to migrate to excise free zones, which is not a practical solution, note sources. At present, the PCD manufacturers contribute a turnover to the tune of Rs 1750 cores, about 25 per cent of the total turnover of SSI units. The 625 contract manufacturers are responsible for 45 per cent of the total SSI turnover, about Rs 3150 crores. Many of the manufacturers had invested huge money to set up high quality manufacturing facilities, to impress large-scale manufacturers and hoping big business.
The industry has about 3500 SSIs with a turnover of less than Rs 1 crore, and these units will be forced to discontinue production after three to four months, as their excise benefit limit would be over in three to four month production. These units employ an average 10 to 20 people, and numerous employees face dark future. Financial condition of most of the units are vulnerable as they had borrowed many lakhs to invest in plant and machinery to meet Schedule M norms, opine sources.
CIPI says the SSI sector has invested more than Rs 7000 crore on infrastructure, and the government should be held accountable for the closure of units. "They should clear the reason why they demanded SSIs to invest and modernize and then suddenly brought in a notification with a conscious ploy to kill SSI units," bemoans T S Jaishankar, chairman, CIPI.