A large number of small and medium companies located at the former excise free zones of Baddi in Himachal Pradesh, and Uttaranchal are struggling to keep their operations afloat, thanks to the crumbling infrastructure facilities and undependable manpower in the area. Left with little option, these companies are now considering to shut down their operations.

A visible trend is that companies are closing their units because they have lost contract manufacturing orders resulting from a weak regulatory framework in the region.

Poor adherence to quality management systems and adherence to good manufacturing practices have resulted in frequent complaints. Moreover, emergence of pharma parks and clusters in Andhra Pradesh and Telangana with far more attractive options to set up pharma manufacturing plants have seen a decline in the interest towards Baddi and Uttaranchal, according to industry experts who did not want to be named.

The government identified these excise free zones in 2005 with a view to spur economic development and drive growth. Although the objective was good, but when the government moved away from excise free component, the region lost its significance. Large pharma companies were unable to keep a watch on the production practices of the SMEs who undertook their job works. It was seen to be difficult to access for companies present in western and southern states where pharma marketing flourishes.

Baddi and Uttaranchal are no longer preferred, considering the logistics, infrastructure and skilled manpower which are far more well established outside these former excise free zones, said Kaushik Desai, honorary general secretary, Indian Pharmaceutical Association and a pharma consultant.

The key reasons for non-preference of Baddi and Uttranchal are that there is no income tax benefit although minimum alternate tax (MAT) is applicable, said Harish Jain, treasurer, KDPMA and director, Embiotic Laboratories.

Excise benefits is almost coming to an end. Many of the companies have already completed their benefit like for instance Micro Labs, Zydus Cadila, Akums, etc.

The quality of products is questionable. Regulatory authorities have come under scanner due to indiscriminate issue of permissions for fixed dose combinations manufactured from this region. Another issue is that the adherence to GMP is also a suspect, noted Jain.

Pharma manufacturers in Baddi are struggling and winding up operations. This is mainly because of a pharma trader mentality that prevails there. Outside the ambit of excise free zones, there is good investments. For instance, we are manufacturing for international markets and slated to strengthen our exports from our Uttaranchal unit. New up-gradation of plant capacity opens up organic growth prospects, said Shailesh Siroya, managing director, Bal Pharma.

According to IBEF, Telangana has proposed to set up India's largest integrated pharmaceutical city spread over 11,000 acres near Hyderabad, complete with effluent treatment plants and a township for employees, in a bid to attract investment of Rs. 30,000 crore in phases.

“The only attraction for pharma manufacturing investments would be tax concessions, availability of good infrastructure and access to qualified workforce. Baddi and Uttaranchal were attractive only from the point of being excise free zones. Now many states are working to nurture local pharma production offering attractive incentives which will only further erode interests to sustain operations in Baddi and Uttaranchal,” said Desai.