The drug manufacturers in Gujarat seem to be in a race to leverage the export and biotechnology industry by exploiting full potentials in these areas. If the quantum jump in exports and efforts of the state government to boost the biotechnology industry are any indication, pharmaceutical and biotechnology industries in Gujarat are all set to attract a host of small and medium entrepreneurs (SMEs) to foray into these fields.
The sudden spurt in pharmaceutical exports since the past one-year has already seen several small and medium scale manufacturers venturing into this sector. The statistics of the total export of pharmaceuticals in the state, calculated by the Indian Drug Manufacturers Association, shows a distinct growth in exports.
In the financial year 2006-07, the Gujarat pharmaceutical industry recorded exports of approximately Rs 56 billion, up from Rs 36.55 billion in the last year. The FY07 results show an increase of 53 per cent in exports from the state, compared to approximately 22 per cent in the previous year.
"Presently, the pharmaceutical industry in Gujarat is maintaining its growth momentum mostly through exports. The compliance of revised schedule M, which takes the quality standards of each companies near to the WHO GMP standards, has helped more medium level companies to enter into exports," said an industrial source. As of January 01, 2007, the Gujarat pharmaceutical industry has 902 units engaged in manufacturing of allopathic bulk drugs and formulations and 2122 loan licensees.
Identifying this growing trend and its potential, the Gujarat State Board (GSB) of Indian Drug Manufacturers Association (IDMA) is planning to bring more SMEs into the export sector through various programmes. As a positive note, majority of pharma majors have already established their presence in overseas by exporting important products.
Apart, IDMA has initiated an export consultancy project with a cluster programme, envisaged to help the SMEs that account for more than 80 per cent of the total pharma manufacturers in the state. It is learned that IDMA will make an initial investment of Rs 20 to 25 lakh to set up a support centre that would house basic software infrastructure to provide any information needed to SMEs regarding export matters.
The Credit Rating Information Services of India Ltd (CRISIL), the infrastructure and corporate advisory firm, had prepared a project report on the export consultancy project of IDMA and submitted to the Government of Gujarat three months ago. The state government is seeking support from the central government for the proposed project and is expected to come up with a positive result soon. The study was an attempt to analyse the requirements of SMEs in the current competitive market and to make them 'invest and grow', said Sunil R Parekh, Advisor, CRISIL.
The study analysed impacts of the changed patent regime and the challenges faced by the native players from the units in tax-exempted states. It also analysed the additional investment made by the SMEs to comply revised Schedule M, which resulted in financial burden to many units.
Referring to the IDMA's export consultancy project, Parekh said, "The method would allow the SMEs to neutralize the disadvantages that obstruct their growth and create a niche market by focusing more on exporting internationally competent quality products. It will enable the units to create export links with the less, semi-oriented and fully regulated market by creating business-to-business alliance with similar counterparts. "The idea is to create hi-tech SMEs with powers to enter into drug development and most complicated R&D projects," he added.
Another area, which the IDMA plans to explore for the benefit of the SMEs, is the biotechnology industry. The state government has been supporting the biotech sector in Gujarat through various incentives and schemes. Also, it has set up the Gujarat State Biotechnology Mission (GSBTM) for the development of the biotech research and industry. The state government has introduced the biotechnology policy in the middle of April 2007, with clear-cut plans to carry the growth of biotechnology sector forward in the next five years.
The IDMA's programme to help the SME units is being supported by initiatives like GSBTM, which focuses on biotech and nanotech industry. The association has contacted the Government of Gujarat, seeking permission to proceed with its plans to visit the major biotech driven companies for a detailed study on the project. It has also sought adequate support from the authority to carry out its plans. Apart, IDMA, on behalf of SMEs, has sought the support of the GSBTM for training, technical aid and infrastructure facilities. The plans are only on the preliminary stage and much more time and effort is needed both from the industry and authority to finalise the project, it is learnt.
"The association has discussed matters with us, but the idea is in a premature stage now. If these units are ready to switch over to biotech, there is a wide scope left in this sector in Gujarat," said Akshay Kumar Saxena, mission director, GSBTM. "Out of the total 3000 drug manufacturing units in the state, only 40 companies are engaged in biotech activities currently. With the kind of support offered by the government in the sector, there is a good opportunity for more companies in biotechnology," Saxena noted.
The increased pressure on domestic market, due to various adversities including the domination of products from the excise duty free zones like Himachal Pradesh and Uttaranchal, is the main reason for offering of sops and other initiatives to propel the industry, said Dr R S Joshi, executive secretary, GSB-IDMA.
Though the export activities of the state pharmaceutical industry witnessed a spurt in the last one-year, the contribution of the state pharmaceutical industry to the national level has come down to 28 per cent from 40 per cent, largely due to increased presence of players from the excise free states. The small and medium scale companies are most affected by this trend, as they are relying mostly on the sales inside the state. However, some of the major pharmaceutical companies are planning to set up their plants in the state to concentrate more on exports, maintaining their presence in the tax-free states to boost domestic business.
"The products from tax exempted states are dumped in Gujarat and Maharashtra, where the domestic industry has a major hold. The chemists choose to purchase products from tax exempted states, as they will also have more benefit from the deal," alleged Joshi. The industry in the state is passing through a very tough time, due to the increasing pressure, he added.
"The excise free zones may have negatively impacted the business prospects of the Gujarat based companies in national level. We have set up a plant in one of these zones and is planning to reserve our Dholka plant for exports, for which the excise duty has no role," said Indravatan A Modi, chairman, Cadila Pharmaceuticals Ltd.
It is not for the first time that the industry association has raised its concerns over the domination of products from tax-exempted states in the domestic market. The industry received a blow when a large number of manufacturers, more than 200 units, shifted their operations from the state to the excise free zones in the recent past.
The Gujarat State Board of IDMA filed a case against the central government in Gujarat High Court against giving excise concessions to a particular region. The petition cited the notification as an act of discrimination against pharmaceutical units similarly situated in other states, violating Article 14 of the Indian Constitution. The case is waiting the Court's hearing for more than one year, extending the ailments of the manufacturers who are relying solely on their facilities in the state.
"The date for hearing the writ petition is always extended, even when it was expected to turn out on the first week of May, 2007. The date is being extended due to the absence of solicitor general or any councilors from the side of government. This, we consider as a planned move from the central government or the lethargy of the authority to hear our voice," said Deepak Padia, former chairman, IDMA state board, who is also one among the petitioner.
The association is also in the process of launching an e-readiness center through a web portal to help the SMEs in the state. The whole spectrum of information, including details about exports to various countries, domestic market and product wise and market wise study reports, will be made available through the center. The association has signed a Memorandum of Understanding (MoU) with the software giant Microsoft Inc. for preparing the e-readiness center. Signed at the end of 2006 through the National Manufacturing Competitiveness Council (NMCC), the MoU has entitled the software firm to analyse and prepare a product to meet the IT requirements of the Ahmedabad pharmaceutical cluster.
The project, Project Vikas, will prepare software to calculate operating costs and derive competitive pricing for their products in international market. The project, intended for the SME pharma sector in the state, is expected to complete within three years.