The SME Pharma Industries Confederation (SPIC) has urged Prime Minister Dr Manmohan Singh to levy excise duty on contract manufacturing in excise free zones (EFZ) like Himachal Pradesh and Uttarakhand as the MRP-based excise policy has played havoc with the pharma sector in the country, especially with the SMEs.

In a representation, SPIC secretary general Jagdeep Singh said that due to the flawed MRP-based excise policy that was introduced from January 8, 2005, the SMEs are demoralized, while the government had lost thousands of crores of rupees of revenue during the last six years. Besides, prices of medicines have skyrocketed and bribing of doctors has become rampant to fleece the consumers.

Unless the government goes back to ex-factory excise policy, the government should levy excise duty on contract manufacturing in excise free zones, which was approved by the PMO way back in 2006. Although excise duty was cut from 16 per cent to 4 per cent over the years to reduce disparity between EFZ and non-EFZ, it was not enough in view of several other factors, SPIC letter said.

As the change in excise modality in 2005 was replete with anomalies, 70 per cent of industry migrated and created huge capacities in HP and Uttarakhand. Higher MRP on labels enabled them to outwit units in non-EFZ because if the same high MRP was to be printed by units in non-EFZ, its factory price (including excise) would rise drastically. This renders units in non-EFZ unviable, the letter said.

Citing an example, Singh in his letter said that Ceftriaxone injection 1 gm is a widely used essential drug of which the factory price to MRP ratio is not too high. Unichem sources this a new brand of the drug, Ceftricop, from Baddi and sells to wholesalers at below Rs.12 per piece. The wholesalers sell at Rs.12.80 to retailers. The MRP on label is Rs.128. If an SME outside the EFZ was to produce this drug, it would pay excise of Rs.3 per piece and after accounting for Cenvat of Rs.1, doctors and retailers pocket 900 per cent profits. The hapless consumers have no choice except to buy the prescribed drug because the doctors insist that he will not be responsible if the prescribed drug is not used.

Singh further said that around 500 shopkeepers have sprung up in Chandigarh and Ambala alone who are sourcing their own brands at MRP of choice from EFZ without payment of excise and promoting them by bribing doctors. The ratio between the factory price to MRP has become higher and higher and in many items it is 1:20.

Large companies which had set up their own units in EFZ recovered investment in less than an year by way of excise saving alone. Others used the contract manufacturing route to source from EFZ. But most of the 5000 SMEs could not do this and are struggling for survival because on the one hand their excise exemption limit when calculated on net assessed value gets truncated to half, and on the other hand they simply cannot compete against units in the EFZ who can print highest MRPs on labels, the SPIC letter said.