The Pharmaceutical Technology Upgradation Fund (PTUF) proposed by the Union Chemicals Ministry is likely to be effective from April 1, 2006. The PTUF is expected to be part of the Union Budget 2006-07 announcements. The fund, meant to subsidise the interest component of loans taken by the small and medium scale pharma units for implementation of Schedule M, is to be implemented by Small Industries Development Bank of India (SIDBI).

According to sources, the ministry has proposed to give 5% interest subsidy to a maximum limit of Rs 1 crore on a single application. Supposing the banks are offering technology upgradation loans at 7% to the units, the interest burden on the drug SMEs would be just 2%. The loan would be for a period of five years. The ministry expects that over 3,000 SMEs would be benefited through the programme.

The PTUF proposal, cleared by the Chemicals Ministry recently, is now being vetted by the Planning Commission and the Finance Ministry. As per PTUF, the drug units will have to enter into a tripartite agreement with SIDBI and the service bank. The proposal would be vetted by SIDBI before sanctioning the loan.

In the just released draft Pharma Policy 2006, the ministry has proposed a 2% health cess on all central taxes to raise the necessary amount needed to fund the programme. Of the Rs 6,500 crore that is expected to be raised, Rs 500 crore may be earmarked for funding the technology upgradation assistance programmes.

It should be noted that the ministry had recently invited comments from the industry experts from within the government and outside to finalise the scope of the scheme, capital subsidy v/s interest subsidy, eligibility criteria, definition of technology upgradation, eligible machinery, areas that needs to be covered under the scheme and its relationship with the existing credit linked capital subsidy scheme available for small scale industries.

The decision to set up PTUF has come in wake of the changes in the IPR regime, amendments in Schedule M of Drugs and Cosmetics Act and modifications in the central excise duty structure. The government has acknowledged the fact that these developments have put the SSIs in a difficult position where they are compelled to make definite choices in terms of products, quality standards, prices, production, R&D, marketing and organisation to stay in the race.

The sub group of National Manufacturing Competitiveness Council (NMCC) that looked into the problems of the pharmaceutical industry had also suggested the setting up of a technology upgradation assistance scheme for the small and medium scale industries in the sector.