The January 7 Notification of the Finance Ministry introducing MRP based excise duty on medicines have backfired with the prices of drugs manufactured in the excise free zones showing 100% variation with that of the other areas, complains Confederation of Indian Pharmaceutical Industries (CIPI) - SSI. CIPI has produced an indicative list of 16 medicines (see attachment) where the prices are in huge variance with the ones manufactured in the excise free zones and rest of India.

The confederation say that the large scale shift in the production base to the excise free zones have resulted in revenue losses for the government and has only helped big pharmaceutical companies increase their profits. "Freedom from pressure of Excise on their MRP has resulted in profiteering, which is taking medicines out of reach of the common man. Drug prices have skyrocketed in the last one year, and government agencies, including NIPER has confirmed this fact. The Maximum Retail Prices (MRP) have at least doubled - as depicted in the comparison data when units shifted production to Tax Exempt States after MRP based Excise was levied on 7 Jan 2006," Lalit Kumar Jain, Co-Chairman, CIPI said.

Interestingly, the purpose of the Notification was to get extra revenue by getting rid of evaluation disputes. It was also felt that the valuation of excise duty on MRP will bring in an indirect pressure on pharmaceutical companies to keep their MRP as minimum as possible. However, with 70% of the drug production slated to shift to Tax Holiday areas by sunset of 31-3-2007, CIPI laments that the only result would be the closure of 5500 small scale pharma units elsewhere in the country.

The threat before the SSI sector is multi-fold. While most of them were surviving due to job works, the excise notification took the sheen away from loan licensing, thereby tempting major companies to shift their base to tax free zones, or get their job work done from such zones. Secondly, the privilege to jack up MRP would result in increased trade margins, which SSIs would find difficult to compete with. "We face closure owing to over 30% disparity created by the Notification. The new trend of pricing is eroding our capability to keep prices lowest in the world. Jobs to 10 lakh workers and investment of Rs 10,000 crore are also jeopardized. By a strange coincidence, these units were first asked to comply with Schedule M, a regulatory law, compliance of which is mandatory for all Units, and then their Excise burden is increased," Jagdeep Singh, President Punjab Drug Manufacturers Association, a constituent body of CIPI, stated. The CIPI also feared that the Chemicals Ministry's attempt to include recommendations for fiscal sops in the forthcoming Pharma Policy 2006 is also being thwarted by the Finance Ministry.
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