With increasing patent expiries and availability of quality generic products, the pharma SME segment has been the subject of increased focus and is rightly viewed as an agent of economic growth. This article features the challenges ahead of pharma SMEs and the way forward for them as it is time for SMEs to consolidate among themselves for better manufacturing and marketing capabilities

The Indian pharmaceutical industry has been acknowledged for its wide-ranging capabilities with regard to drug manufacture and the application of latest technologies. Over the years, the industry has qualified itself to be amongst the top science- based industries of the nation, contributing substantially to the export growth of the nation. On its own initiative and with the support it has derived from various government agencies, the Indian pharma industry is today both admired and feared by global competitors.

The Indian pharmaceutical industry helps meet up to around 70%—75% of the country’s pharmaceutical needs. The growth of this industry in the last couple of decades is one of the main reasons for the availability of reasonable-quality, affordable medicines in the market. Consisting of around 250 large units and approximately 8000 small- and medium- scale units, the pharmaceutical industry provides employment to both skilled and semiskilled labour.

In a country with a population in excess of one billion, balancing its act between a growing middle class population that has gained access to better quality medical care owing to its ever- increasing purchasing power and the majority population comprising the rural populace and people with low economic prosperity, the pharmaceutical industry over the last few years has been forced to evolve itself to meet the changing demands. Population growth coupled with a rise in per capita income and increasing health awareness are factors that will continue to drive the domestic demand for pharmaceutical products. The economic survey 2005—2006 predicts that India's population will reach around 1.4 billion by 2026. The percentage of the population in the age group of 15—65 years in 2026 is expected to be around 68% as compared to around 60% currently. While the pharma market is still competitive and dominated by low price, the newly evolving quality standards in the healthcare industry have brought in new challenges to the pharmaceutical industry.

The Indian pharmaceutical industry is passing through a transformation period, and only when the players organize themselves will they be able to avail of the immense opportunities that have been thrown open, both in the domestic and global markets.

Role of SMEs
In India, Small and Medium Enterprises (SMEs) are classified as per the Micro, Small and Medium Enterprises Development Act, 2006. Enterprises are classified into micro units, small units, medium units, or large units on the basis of the investment made in plant and machinery. The bases of comparison in other markets are different. In the European Union, for example, classification of enterprises as SMEs depends on parameters such as employment, assets, and business turnover.

With the practice of defining SMEs under different and multiple criteria, many times the role played by the SME sector in a developed or developing economy does not get sufficient importance. The key indicators that define the economic prosperity of any developing or developed nation, such as poverty alleviation, ever-increasing employment opportunities, and availability of various items of daily use to name a few, are more often than not provided by the SMEs. This has resulted in the big enterprises being kept on their toes by an intensely competitive SME sector that is customer friendly on both the quality and price fronts. SMEs can attribute their competitive edge to their ability to take fast decisions, which in turn is a result of factors such as low staff strength, direct control of the entrepreneur in business process and progress, availability of raw materials in the vicinity and at the door step, and the ability to manufacture innovative products that cater to the needs of specific regions. Owing to the success of SMEs, an increasing number of youngsters are looking at becoming entrepreneurs, which has resulted in a spurt of employment opportunities in smaller towns and cities, thereby reducing the pressure on Metros.

Realizing the importance of SMEs, the central government has plans to implement a national strategy for manufacturing, drawn up by the National Manufacturing Competitiveness Council (NMCC). This positive step will help SMEs achieve higher levels of competitiveness and efficiency in their operations. In addition to the Pharma sector, chemicals & petrochemicals, IT hardware, and electronics are some of the areas that will benefit by this initiative.

SMEs have emerged as a vibrant tier of the economy as they have already taken over as key contributors to the country’s GDP. The Planning Commission is looking into the existing policies and is considering the necessary changes required to make SMEs more proactive to help achieve greater economic goals. The Planning Commission is also of the opinion that the existing policies need whetting to enable SMEs to play a more dominant and proactive role in the growth of the national economy. It is now well accepted that a vibrant SME sector is the future, and hence, the government is contemplating support in all possible ways to sustain the growth momentum.

Pharma SMEs
With an increasing number of products getting off-patent in the coming years and with the growing awareness of the usefulness of quality generic products in some developed and developing countries, Indian pharmaceutical SMEs, which are currently focused on the generic business, stand to gain significantly. Indian pharmaceutical SMEs have achieved low price and high quality the two critical factors for the success of any industry by complying with Good Manufacturing Practices (GMP). Both the World Health Organization and the United States Food and Drug Administration have granted approvals to many of the Indian pharmaceutical SMEs, which has enabled them to export generic products across the globe. Since the global generic business is expected to show a growth of 20% annually, many large MNCs are looking at utilizing this feature of Indian Pharma SMEs to hold on to their business share.

Indian SMEs enjoy cost-effective production capabilities, and when this is backed up by improved scientific technology and favorable regulatory environments, they will be well placed to tap the growing generic business opportunities.

Challenges ahead for pharma SMEs
The applicability of excise duty on the basis of maximum retail price (MRP) as opposed to the ex-factory price put a damper on the growth possibilities of pharma SMEs.

Owing to this, large companies decided to cut back on outsourcing, and all these businesses were shifted to tax-free states like Himachal Pradesh, Jammu & Kashmir, Jharkhand, and Uttaranchal. This has resulted in a spurt of new manufacturing ventures in these states being created in a hurry, resulting in non-uniformity of application of quality measures. This resulted in the government formulating the revised schedule M of the Good Manufacturing Practices (GMP) with effect from July 1,2005. While this move was intended to benefit consumers and improve the image of the SME sector, many enterprises found it difficult to bring in the necessary finances to upgrade their manufacturing facilities. This resulted in closure of many SME units in all the four tax- free statses. In the other states, while compliance with the new GMP norms did take place, the revised excise duty norms of application on the basis of MRP affected the sustainability of the SMEs. Enough representation has been done to the powers that be, and the SME sectors are waiting hopefully for some positive outcomes.

The other major development that has had an impact on the growth and viability of pharma SMEs in the recent past has been the spate of takeovers of domestic pharma firms by MNCs. The approximately 6000 remaining SME units in India fear that they will lose their growth opportunities and that their current share of 40% in exports will be affected by these developments. The SME Pharma Industries Confederation (SPIC) has been spearheading the efforts in representation of this matter to the various governmental bodies. They have been pointing out the possibility of drug prices being increased by the MNCs to recover the cost of acquisitions.

The way forward
Pharma SMEs are here to stay and will play a very dominant role in meeting the needs of the ever-expanding drugs requirement in the domestic market. However, it is in the area of exports that they are likely to face intense pressure in terms of meeting the upgraded quality requirements while retaining their price competitiveness. To overcome this challenge, the following measures can be considered:

• Pooling of resources in terms of spending on R&D. Since research is a high-cost area, many small and medium
• enterprises can come together to form small to medium groups and seek governmental support. This is an initiative worth evaluating.
• Self-marketing: This is one area where SMEs are found wanting as a group. Dr. Smarta opines, “What we require is a 3C framework—Capital to facilitate access to financing; Connection to enhance market access by connections; and finally, Competency to develop branding. We have done trading and selling, but we have lost focus on marketing and branding, so we need to market SMEs. SMEs have tried to develop themselves in isolation, but they
• lack direction, and hence they lag.”
• Govt Support: Support from the govemment towards ensuring that SMEs, which are the drivers of the growth of the rural economy, have a sustainable business model.

To conclude, Pharma SMEs in India can ensure a good future if they are willing to accept change and adopt a collaborative approach with both the government and the other major industry players.