The Union government declared a ten year excise holiday and a five year income tax exemption in Himachal Pradesh, Uttranchal and Jammu & Kashmir in 2002 to give a boost to these traditionally backward states. These concessions were notified in 2003 and by early 2005, entrepreneurs started coming to set up industrial ventures in these states especially in pharmaceutical sector from Gujarat, Punjab, Maharashtra and Delhi. By middle of 2006, more than 120 pharmaceutical units were operating in Baddi region alone. The number started increasing over the subsequent years but only 20 per cent of these units were owned by big companies while the rest were small units. When the duty free scheme was launched by the Centre, the excise on pharmaceuticals was 16 per cent outside the free zones and that was what actually lured the companies to these locations. The duty was later reduced to four per cent over the years and with that the units outside free zones started getting more benefits through reimbursement by way of MODVAT. The end of good times in these duty free regions started with the reduction of excise duty and many of the small and medium scale units started losing interest in continuing their operations here.
The closure of pharma units started in Himachal and other states from 2010 with the general excise duty cut to the pharmaceutical sector and withdrawal of income tax holiday. The units have been already suffering on account of non availability of good infrastructure and access to qualified workforce. The state governments in these states did not take any initiative to develop good roads and other basic infrastructure at least in the free trade zone areas of these states despite repeated representations. Frequent power cuts and high tariff rates for power were two other discouraging factors that forced the entrepreneurs to shut down their plants. Poor adherence to Quality Management Systems and Good Manufacturing Practices by these units have resulted in frequent complaints about the products from these states. In the absence of stringent drug regulatory system, pharmaceutical products coming from these states were frequently seized and not allowed to be sold in other states. Lately with the emergence of pharma parks and cluster development projects for the pharma sector in Andhra Pradesh and Telangana with better incentives, most of the remaining pharmaceutical units in those backward states may shut down soon. The attempt to develop these states comes to an end with that. Grant of tax holidays or some central incentives for a limited period cannot ensure development of pharmaceutical sector in state or a region. For that, active support of the state governments in terms of infrastructure, an efficient regulatory machinery and skilled man power are necessary.