The Indian Drug Manufacturers Association, the largest pharma industry body representing mostly the small and medium scale drug companies in the country, has stated that the government decision to levy excise duty on MRP with an abatement of 35 per cent has come as a big shock to pharma industry. The Association has called the move as big jolt to the SME segment in the drug sector as the decision seems to have been taken without proper application of mind.

Since the post manufacturing expenses in pharma industry is higher than any other sector, 35 per cent abatement could not be justified and it is certain that the move will push the drug prices up by at least 10 per cent more.

The post-production expenses in pharma sector including all trade margins and commissions, freight, insurance, packing and delivery, advertising etc comes to around 56.5 per cent. Besides the trade margins, the industry also spend heavily on distribution as well as promotion and transportation. Thus it should have been taken into consideration before deciding the abatement, said Suresh Khare, president, IDMA while talking to media.

Adding the vows, the change over from excise on transfer price to excise on MRP would be a death knell for small and medium size pharma industry which has been surviving on doing job work for large manufacturers who will now prefer to do manufacturing in house. This will mean closure of many units leading to large-scale unemployment, he added.

The IDMA executive committee stated that the Association has already sent an SOS to the finance as well as C & PC ministry requesting them to keep the notification in abeyance at least till the budget is presented. "The government should have taken the industry into confidence before coming out with the notification and then fix the date from which the system would be applicable and there was no need to rush into the revised mode of charging excise as that will create a lot of difficulties for the industry as the stocks lying in the factories would have to be repackaged with the revised prices as required under DPCO. If that is not done, it will amount to violation of DPCO and under Essential Commodities Act," said Dinesh B Mody, member, executive committee, IDMA.

The IDMA is concerned that most companies may not be able to sustain the inadequate abatement of 35 per cent and would have no choice but to increase the prices of the medicines and hence medicine prices are likely to go up by approximately 10 per cent. This would also lead to increased requirement of cash flow to pay higher excise duty.

"Unfortunately, the business environment for small and medium units is becoming extremely discouraging with the onslaught of government notifications such as Patents 3rd Amendment bill, Schedule M amendment etc. In fact, the business environment is becoming more conducive for MNC's and big business houses which is likely to create monopolistic situation due to lack of competition. The writing on the wall that the closure of the national sector small and medium pharma companies would pave way for monopolistic situation thereby resulting in increased cost of medicines as well as shortages," said IDMA president.