The finance ministry's decision of not to grant the much discussed sops for the pharmaceutical manufacturing industry has pushed more than 2000 contract manufacturing and loan license pharma units in Gujarat to the verge of closure.

The state has about 1750 loan-licensed units and most of them have either curtailed production drastically or are in the process of downing their shutters. According to Dr. R S Joshi, executive secretary, Indian Drugs Manufacturers Association - Gujarat State Board (IDMA- GSB), most of these units are now seriously thinking of migrating to the excise free zones of Himachal Pradesh, Uttranchal and Jammu Kashmir or to close down forever.

"In the present situation with all hopes lost, the units are seriously thinking of migrating to excise free zones. According to my knowledge, about 60 units have already closed down. We estimate that all these units are likely to close down within the next six months. Already more than 200 units have migrated to the excise free areas," Joshi told Pharmabiz.

The manufacturers were trying to survive hoping a reduction in excise duty from 16% to 8% and increase in turnover limit from Rs 1 crore to Rs 5 crore in the 2005-'06 Union budget, which could have offered some relief for the manufacturers and a level playing field with the excise free zone players.

He said most of the units were surviving by curtailing production, with five or four days a week production and by functioning only or two sections. Now, many units have reduced production to three days a week or reduced working hours due to lack of adequate orders. The units were surviving, thanks to the contract manufacturing works offered by large-scale Indian companies and major multinational pharmaceutical companies for an extended period of about six months until the pharma units coming up in excise free zones are functional. With this period over and many units with quality manufacturing facilities taking off in the excise free areas, the majors are reluctant to place orders with their former partners. Most of these companies have informed the manufacturers their inability to give further orders, unless the units are relocated to excise free zones.

Joshi said the pharmaceutical production in Gujarat could drastically come down due to the situation. The state produces pharmaceutical products worth about Rs 15800 crore, about 45% of India's pharma production. The 2000 odd loan licensees and contract manufacturers produce drugs worth about Rs 6500 crore to Rs 7000 crore. The state is likely to lose this entire Rs 7000-crore drug production since this year, fear IDMA-GSB sources.