In the changing pharma manufacturing scenario of our country, there are many new policy initiatives by the Government that are affecting the MSMEs. If the Government does not give special attention for the survival of MSME pharma industry, then many of them will have to down shutters in the next five years, says Vinod Kalani, Co-Chairman, Federation of Pharma Entrepreneurs (FOPE) and President and Vice Chairman, Confederation of Indian Pharma Industry (CIPI) in an interview with Ashwani Maindola.
Could you specify the number of units currently running in the northern part of the country specifically Uttarakhand, Himachal and J&K and the revenue they generate in the local economy? Also please throw light on the nature of work of these units?
After the creation of excise free zones in the year 2003 in Himachal Pradesh, Uttarakhand and Jammu & Kashmir and imposition of Central Excise on the basis of MRP in 2005, majority of contract manufacturing work has been shifted to these states. Besides this, most of the organized and large pharma industries also set up their plants in these excise free zones.
There are almost about 750 pharma manufacturing units in these excise free zones. Overall, in Northern India, there are about 1200 pharma manufacturing units.
These units have created lakhs of jobs in these states besides generating huge revenue for these states. Thousands of ancillary units have also been set up and they are also employing lakhs of people and generating huge revenues.
There are about 220 WHO GMP approved facilities. These units are into export of formulations also. Many of the units have their in-house R&D centres. Majority of the units are manufacturing on contract basis for other brands.
What impact do you see on the future of these units once the excise duty relief is gone? Will there be an immediate affect or the companies would rather wait?
The majority of units were set up by 2007 in these excise free zones and now 10 years exemption of Central Excise from the date of commercial operation is getting over for many of these units and by 2017 end, majority of them will be excise paying units.
From the year 2005 onwards, many of the pharma units other than in these excise free zones in the country were uprooted and many of them shifted to these SEZs and many were closed. The same situation is now happening in these excise free zones, as once the exemption is over, contract manufacturing business will shift to other states or to the units having exemption up to the year 2020 . In case the GST is not implemented in the near future , then almost 50 per cent of the MSME will face closure. Once the GST is implemented then there would not be much difference in the cost of excise exempted units and excise paying units and they will be practically at par with G.S.T which can save the day for the excise paying units.
There is already lot of turmoil in these excise free zones and the future is uncertain.
According to reports, a large number of small and medium companies located at the former excise free zones are now considering shutting down their operations. Do you have any info about any units shutting down operation?
About 60 to 75 units dependent on contract manufacturing are struggling to keep their operations afloat, as now, with excise benefit over and cost of production increasing day- by- day. In the near future, we may see many of these units shutting down their operations because if the business is not profitable then one can not sustain for long.
Many states are working to nurture local pharma production offering attractive incentives which had further eroded interest in Baddi and Uttaranchal. Do you think this together with the doing away of excise duty would compel the units to move out of these places?
As majority of the entrepreneurs had shifted their base from other states and now with no benefit left in Himachal and Uttarakhand, small units not having much investment may shift to their home states. Units having major investments and having various accreditations, approvals, registration with many countries for export and various companies for domestic supplies etc. shall have a very difficult time as either they will be closed or wait for GST to be in place or develop export sales as shifting is not viable.
For many formulation units even if excise is paid , it is viable and that is again a big hope. Moreover many units are developing export business which gives a big hope for survival and growth
Since now these zones have become a major hub for contract manufacturing with modern plants and huge capacities,there can be a setback for a limited time but many of the units will do well with the passage of time.
How do you see the GST Bill compensating the excise duty component or how the local governments should react to keep these units under their fold once the excise component is gone?
If the GST rate is around 16 to 18 per cent , then there would not be much of difference in the exempted units and units paying excise. Local Government can help these units by way of subsidy on transport, power tariff etc., but nothing much can be expected out of the state Govt.
The overall pharma manufacturing scenario is changing in our country and there are so many new policy initiatives by the Government of India that are affecting the MSMEs of the country. If the Govt. of India does not give special attention to the survival of MSME pharma industry,then many of them will close in the next five years time.
Further, besides excise there may be other factors as well like ease of doing business, power supply, climate conditions and skilled manpower amongst other. How do you weigh these factors against excise duty component?
We are moving towards a monopoly regime by a few big global companies and moving away from the competition created by thousands of MSMEs.
The major policy initiatives in the country are pro big and multinational companies, harming the interest of MSMEs. The undercurrent is that pharma entrepreneurs are facing a tough time and their next generation is moving away from pharma manufacturing activities.
In the process of globalization it seems that the country is losing the balance as our policy initiatives are helping the global players and the Indian pharma industry is losing the ground day-by-day.
There should be competition so that prices are in check and if we move towards monopoly, then drugs will become expensive and out of the reach of general masses in the future.