Karnataka's pharmaceutical companies are in a deep crisis following pharmacy trade failing to lift the drug stocks from the units. The supply lines have totally dried up and the State is also facing a serious drug shortage, which is affecting patients. The Karnataka Drug Manufacturers Association (KDPMA) estimates that loss in sales due to strike is to the tune of Rs 30 crore in the last five days beginning from April 1.
VAT posed a serious problem because drugs stocks are being returned to companies by the wholesalers and sub dealers for refusing to pay the 8 per cent difference in tax for the products on sale. In the wake of this, the companies in the State have witnessed near zero sales loss, informed N Jatish Seth, secretary, KDPMA and director, Srushti Pharmaceuticals who added that that the losses are detrimental to the growth of the companies in the state. The chances of recovery of the same are minimal.
On the VAT compliance, companies are sore about the lack of clarity and there is no clear picture emerging despite the fact that the Union government is promoting it as a 'progressive tax system'. According to Jatish Seth, traders are demanding the 8 per cent refund from the industry which the government is supposed to pay later. "There is no logic behind this demand. Hence the industry in the State is on a wait and watch situation to see how such issues are going to be sorted out."
According to Sunil Mundra, member KDPMA and managing director, Natural Capsules, VAT impact on the industry per se is good, but it is unfortunate the trade is opposing and their disagreement has affected the drugs sales in the State. "VAT in its true spirit calls for value addition at every stage of sale which leads to multi point tax collection covering the entire chain from manufacturers to wholesalers and retailers. The main objective of VAT is to bring the trade into a 'book-record' system but unfortunately states like West Bengal, Kerala, Assam, Maharashtra and Orissa have now opted for the VAT on MRP at first point of sale and Karnataka traders are demanding the same system."
Shailesh Siroya, managing director, Bal Pharma stated that the industry has further plummeted in terms of performance. Although it was difficult to quantify the exact sales losses he attributed that his company faced a losses of 60 per cent in the last five days. "It is a fact that drugs are not moving from the unit store houses to the wholesalers in the State," he averred.
Suresh Khanna, president API, Micro Labs and past president, KDPMA confirmed that companies in the State were reporting serious losses. "Unless and until VAT confusion is cleared nothing can happen. It was the same state of affairs when the government introduced MODVAT and now the system is working perfectly. It is only a question of time for the situation to improve and for companies to make up the losses once VAT comes through."
While Micro Labs has not evaluated the losses incurred in the last five days, Khanna stated that there is a tremendous fall in sales, which is difficult to quantify.
The small companies will be the worst hit and it is unfortunate that such a situation has come in while the industry is reeling under the impact of excise duty on MRP. Now VAT is a thorn in the flesh, stated KDPMA sources.
The pharmaceutical industry in Karnataka contributes Rs 350 crore in terms of revenue to the State exchequer and provides employment for 12,000 people. Its growth rate is between 10-12 per cent as against the national pharma growth of 12-14 per cent. Pharma products worth Rs 2,000 crore are produced annually, which is 10 percent of the national production. The exports sales are Rs 850 crore which is 8 per cent of Indian exports.