Excise tax drives pharma companies to the hills

Himachal Pradesh and Jammu & Kashmir in demand among sector players.

With the switch to MRP-based excise threatening to eat into their profits, pharmaceutical companies are making a beeline to north Indian tax havens like Himachal Pradesh and Jammu & Kashmir.

While some plan to upscale their production in these states, others are scouting for contract manufacturing alliances.

Ranbaxy Laboratories Limited, the country's largest pharmaceuticals company, has decided to take full advantage of its production facility at Poanta Sahib in Himachal Pradesh.

"We are moving several of our products there," Malvinder Mohan Singh, president (pharmaceuticals), Ranbaxy, said.

A significant part of the $80-90 million capital expenditure planned by the company will go into this unit, though the company has production units in Punjab as well as Madhya Pradesh.

Amar Lulla, joint managing director, Cipla, said, "We are looking at upscaling our production in our facility in Baddi in Himachal Pradesh which will be commissioned in March-April this year. This has become essential in view of the new tax regime."

"Almost 25 per cent of the small-scale units are in the process of moving to tax-free zones ever since the new excise rules were announced. Those who cannot shift to the new locations will not be able to survive," said D K Gupta, co-chairman, Confederation of Pharmaceutical Industry (Small Scale).

The numbers being committed by the industry into these states are significant. Officials in the Himachal Pradesh State Industrial Development Corporation said the state was looking at an annual investment of about Rs 4,000 crore in the coming years from the pharmaceutical sector.

Industry sources estimate that an investment of another Rs 200 crore is being made in Jammu & Kashmir. Under a special scheme for the development of the northern hill states of Jammu & Kashmir, Himachal Pradesh and Uttaranchal, companies investing in these states have been offered sales tax exemption for a period of 10 years.

Several big companies like Ranbaxy, Wockhardt, Cipla, Nicholas Piramal, Torrent Pharmaceuticals, Dr Reddy's Laboratories either have an existing facility in Himachal Pradesh or are in the process of setting up one in the state. Others such as Cadila, Madelly, Venus Chemicals, Sun Pharma have opted for Jammu & Kashmir.