The finance ministry announcement to assess excise duty based on drug MRP has caused widespread resentment among the drug-manufacturing sector of the country.

The drug units, small and big, are to approach the Central Government with representations to make amendments to the notification and increase the percentage of abatement from 35 per cent to at least 60 per cent of the declared retail price. Since the additional excise duty component is to be passed on to the consumer, an immediate increase in drug prices is also feared.

According to trade sources, the notification is to have its effect on the entire range of drugs that are sold in the market. While the prices of drugs that come under the schedule category (price controlled ones) and the high value drugs with less trade margins are to increase, the generic drugs that thrive on high trade margins are likely to become cheaper, they say.

The Indian Drugs Manufacturers Association (IDMA) and Organisation of Pharmaceutical Producers of India (OPPI) have expressed strong disapproval on the government's announcement. The Confederation of Indian Pharmaceutical Industries (CIPI-SSI) has also expressed shock and is to complain before the Union Finance Minister against a decision that can take the wind out of sails of many a loan licensee. The pleas of the associations are to be centered on the percentage of abatement that has been given by the government. The industry associations had been pitching for 55 - 60 per cent abatement during the recent weeks.

"Either the government should raise the abatement from the 35 per cent to 60 per cent or we have no option but ask the government to keep the notification in abeyance," said sources from IDMA.

"We are terribly disappointed with the government decision. We had informed the government well before that under the present circumstances, we would need at least 56 to 57 per cent abatement. While making this suggestion, we had not even considered the breakage and expiry component, which is a major expense for the industry. The promotional expenditure is another component, which the government has not considered at all. If the abatement is not increased, the companies will be compelled to pass on the additional duty burden to the consumer, thereby causing increase in medicine prices. The major pharma houses will also rethink on their loan licensing plans as it would no more be attractive," Z H Charna, director OPPI said. Echoing the feeling, the IDMA functionaries informed that the association is in the process of submitting a detailed representation before the concerned ministries.

The possibility of pharmaceutical companies shifting their production base to excise duty-exempted areas like Himachal Pradesh and Jammu & Kashmir was another eventuality highlighted by the experts. They felt that the government would only end up losing excise revenue if the major companies decide to source their products from duty free zones and avoid loan licensees in other parts of the country. "The worst hit would be the mid-sized pharmaceutical companies," says Lalit Kumar Jain, chairman, Pharma Panel, Chemexcil. According to him, "the small companies would remain unaffected due to the SSI tax benefits they enjoy. The big pharma would shift their production base to upcoming areas where there is no excise duty. The mid-sized companies would suffer," he opine.

Sandip Nangia, president, Retailers & Distributor Chemists Association of National Capital Region of Delhi felt that the increased excise component would call for increased investment for the trade. "We will now need to pool in more resources to purchase and stock the medicines. If the MRP on generic drugs are reduced, we may have to suffer on trade margin front also. The All India Organisation of Chemists and Druggists, to which we are affiliated to, is keenly observing the developments. We would come out with representations once the exact fallout of the excise notification and the VAT plans of the government are very clear," he informed.

The OPPI had requested the finance minister that the percentage of abatement should be at least 58 per cent if drugs come under 4 per cent tax bracket in the VAT regime. "If VAT on drugs are 12 per cent, the abatement should be 61 per cent," Charna said.

Meanwhile, the Chemicals and Fertilizers ministry is known to have triggered off consultations to identify ways and means to avoid any increase in drug prices due to the changes in excise duty calculation.