Retail price blues for small pharmaceutical firms

Small scale pharmaceutical units in the country are facing an imminent closure owing to lack of business opportunities and hostile regulatory policies. Small scale units account for 30 per cent of the Rs 54,000 crore domestic pharmaceuticals industry.

The Confederation of Indian Pharmaceutical Industries (CIPI), an umbrella organisation of pharmaceutical associations, has sought the government's intervention to improve the business climate.

The main demand is to do away with the maximum retail price-based excise collection implemented two years ago, which resulted in 6,000 formulation units losing more than half of their business to larger companies, which set up manufacturing units in excise-free zones.

According to the CIPI, the MRP-based excise collection has failed to serve the twin purpose of tax evasion avoidance and reduction in the prices of medicines. The prices have gone up as manufacturers from tax-exempt states sell products at higher MRPs, said the CIPI.

According to data from the central excise and customs department, the total revenue collection from pharmaceutical products was Rs 1455.37 crore till December 2006 compared with Rs 2265.12 crore in 2005-06.

"Thus far, more than 500 units are functional in the excise-free zones, including about 50 units of large pharmaceutical companies. When all the units planned in these areas take off, more than 80 per cent of the pharmaceutical production in India will migrate to the excise-free zones. The revenue losses for the government from 2007-08 would be more than Rs 1,000 crore," said Jagdeep Singh, president of the Punjab Drugs Manufacturers Association.

Small scale units want the government to implement various committee recommendations on providing higher abatement to SSIs to nullify losses owing to the implementation of the MRP-based excise. They want it to be increased to at least 60 per cent from the current 42.5 per cent.

Another option consists in according special status to formulation manufacturers and offering survival sops such as increased governmental purchases from small scale manufacturers and preferential treatment to the small scale units, as far as the government tenders are concerned.

Another major demand of the units in tax non-exempt states is to do away with the tax benefits offered for job works in excise-exempt areas.

"More than 6000 units in different parts of India, employing over 10 lakh people directly and indirectly, lack the financial capacity to set up units in excise-exempt states. The government asked these units to modernise in accordance with Schedule M and many units burdened themselves by borrowing crores of rupees for modernisation since 2001. Now they are out of business owing to a series of policy decisions that favour large-scale manufacturers," said T S Jaishankar, chairman, CIPI.

"The government has not considered the difference between small and medium scale manufacturers while framing policies. While a manufacturer with an annual turnover of up to Rs 500 crore and Rs 10 crore investments in plant and machinery is considered as a medium scale company, a manufacturer with investment less than Rs 1 crore is considered as a small scale manufacturer," said S R Vaidya, vice-chairman of the SSI committee of the Indian Drugs Manufacturers Association.

In the current scenario, the benefits offered to small scale manufacturers are not adequate. As a result, most units are either closing down or migrating to excise-free zones, added Vaidya.

FACT OF THE MATTER

According to the latest data from the union ministry of health and family welfare, 788 units have closed their production units

State drug control departments in 15 states asked units not adhering to the Good Manufacturing Practices (GMP) as mandated by Schedule M of the Drugs and Cosmetics Act to stop production

About 800 units modernised in an attempt to continue production, another 150 are still in the process of implementation