Karnataka's small scale pharma sector submitted a memorandum to the Union finance minister, P Chidambaram to look into the issue of excise duty on MRP immediately lest it would result in the closure of the units which will not be able to compete in the uneven tax structure era.

The Union Government is showing lack of initiative and displaying a non-committal attitude, claimed SSI representatives.

According to the members of the 180 units in the small scale pharma sector in the state, units have already started facing loss of job works with many customers withdrawing orders and shifting them to units located in the excise free zones at Baddi in Himachal Pradesh, Uttaranchal and Jammu & Kashmir.

The SSI units represented to the Union Finance Minister that the sector managed to compete in terms of quality with large pharma manufacturing companies and it was also far cheaper to outsource from them. This was because the excise duty was paid on the sale price and the burden on the cost of the products manufactured was less. In view of these advantages, the SSI so long thrived on the job works provided by the large companies.

Now with the introduction of the Excise duty on MRP, the tax paid by the small and large units is the same irrespective of the selling price. As the 16 percent duty is quite high, it has resulted in the migration of the large units to the duty free zones. But SSI's are at major loss because setting up of facility at the excise free zones requires a huge investment which is estimated as a minimum of Rs 5 crore. With the movement of the units to the excise free zones the products manufactured at these locations are far cheaper than those manufactured by the small-scale units located in the non-excise free zones which has further hampered their progress and survival.

According to industry sources, there is also a confusion which exists for the large manufacturers as the government seem to have indicated that the benefit of the excise duty is only for companies which manufactures their own products for marketing in the country and excise duty benefit would not favour the loan licensed products. Therefore companies need to wait and watch till April-end when the government is expected provide a clear picture.

If the excise duty favours loan licensed products, then it is sure death of the SSI. But if the duty structure does not support SSI, then there is some hope, stated SSI unit officials.

The 180 companies face a bleak future now and it will be a huge loss to the Union Government as that would mean loss of revenues from the 14,000 small scale pharma units across the country.

Meanwhile, survival strategies suggested by a section of experts in industrial crisis management is that SSI units need to focus on in-house development of drugs and strengthen the marketing arm to enter either unregulated global markets and increase their reach within Karnataka and neighbouring markets.