The small scale pharma industry in the non-excise free zones in the country breathed a sigh of relief as the finance minister Pranab Mukherjee announced the continuation of the excise duty at 4 per cent. Any upward revision in excise duty from the present 4 per cent would have once again put the pharma SSIs in the non excise free zones in deep financial pressure as the reduction in excise duty in December last year had provided them a level-playing field vis-à-vis the drug manufacturers in the excise free zones.
After the central government announced on December 7 last year the stimulus package to the industry to tide over the sagging economic scenario in the country and reduced the excise duty to 4 per cent to the industries across the board, the drug manufacturers in the non excise free zones once again started getting business as the duty cut had reduced the disparities in tax structure between the tax holiday zones and non tax holiday zones.
For the last several years since the government decided to implement MRP-based excise collection, the drug manufacturers in non tax-free zones have been clamouring for a level-playing field to compete with the drug units in the tax holiday zones who, with no excise deterrent on their head, used to print inflated MRP to favour the traders and others.
So, the continuation of the excise at 4 per cent was crucial to the drug units in the non tax free zones as the reduction had given them the much needed level playing field vis-à-vis the manufacturers in the excise free zones like Baddi in Himachal Pradesh and Uttarakhand. Any upward change in the excise duty would have proved to be disastrous for the SSIs in the non tax holiday zones as they will be in great disadvantage vis-à-vis the manufacturers in tax-free zones like Baddi due to the increasing disparities in the tax structure.
In fact, there are apprehensions among the industry, especially the non tax free zones, that the new finance minister might withdraw the across the board reduction in excise duty from 8 to 4 per cent announced on December 7 last year. The government had reduced the excise duty from 8 to 4 per cent as a part of the stimulus package to partly compensate the industry for the losses made by the industry due to the global economic crisis. Like other industries, the pharma industry had also suffered huge losses due to the global financial crisis triggered by the housing bubble in the US. The government's action in reducing the excise duty by 4 per cent proved to be a boon to the sagging industrial activity in the country.