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While Gujarat has managed to regain some lost ground in increasing its share in domestic pharmaceutical production, there is still a long way to go. Following exodus of pharma production units to hill states to take advantage of tax benefits, Gujarat's share in the country's overall pharmaceutical production which had fallen to below 20 per cent in 2010-11, has managed to climb up to around 28 per cent now.
But, while the tax holidays are nearing an end, many units still continue production in these tax havens, and,on the other hand, pharma production in Gujarat is yet to rise to the level that the state could reclaim its former glory as the pharma production hub of India (In the early 2000s, Gujarat enjoyed a 42 per cent share of domestic pharma production).
During 2012-13, Gujarat's production for the domestic market was around Rs 18,000 crore, or around 28 per cent of national production, while the state exported pharmaceutical products worth Rs 15,000 crore, accounting for nearly 20 per cent of the country's exports.
Industry insiders say that while pharma production in the state has been clocking a 10-12 per cent compounded annual growth rate (CAGR), it is yet to make up for the loss of business due to the exodus of companies to hill states. "The companies which have set up units in hill states like Himachal Pradesh, Sikkim, have by now managed to secure WHO-GMP certification and hence they can now use these units for exports," said Chirag Doshi, who runs a formulations unit in Gujarat and is also a senior official of the Indian Drug Manufacturers' Association (IDMA), Gujarat chapter.
While many units in the hill states are actually facing difficulties related to power supply and trained manpower, very few are likely to return as they have already invested in these facilities, feels Mahendra Patel, managing director of Lincoln Pharma. Take for example, Finecure Pharmaceuticals, a formulations maker which has an unit in Baddi in Himachal Pradesh. Vishal Raj, director, Finecure said, "The operational costs in the hilly states are higher compared to that of Gujarat, mainly on account of manpower. We have to get manpower from Gujarat and Maharashtra as there is a dearth of skilled personnel in these states."
The company, however, has no plans to closing down its Himachal unit. Raj says, "The Himachal unit became operational around six years back, and now we are making formulations for sale in the domestic market. We do some contract manufacturing, but that is hardly 10-15 per cent of our production." As for its expansion plans, Finecure is expanding its Bavla unit with an investment of Rs 25 crore, as tax holidays are ending soon.
As Patel puts it, "Once a company has put up a manufacturing facility at a location, one would not just close it down because tax holidays are ending. It is seen as a long term investment, and entrepreneurs would anyway devise ways to stay afloat even under difficult conditions."
He, however, adds that capacity expansion is unlikely in these tax havens. For Gujarat based pharma companies, the future expansion is likely to be in Gujarat only, feel industry insiders. Alembic Pharma, a Vadodara based pharmaceutical major, had set up a manufacturing facility at Himachal some years back. R K Baheti, director, finance of Alembic says, "The Himachal unit is functioning properly, and we have no plans to cut down on production there. However, as far as expansion is concerned, we are in the process of expanding our Vadodara plant only."
It might take a few more years before Gujarat can gain its past share in the overall national pharma production, but it is sure on its track. "We have lost some pharma production to these hill states, however, as the industry continues to grow at healthy rates, eventually, the state's share in national production would rise. This, however, would not happen overnight," said a senior IDMA, Gujarat wing official on grounds of anonymity. He admitted that while the target was to touch 35 per cent share nationally by 2011-12, Gujarat has definitely not managed to achieve that.
Another obstacle in the path of Gujarat's pharmaceutical production rising is that many companies in the state actually get drugs contract manufactured in the hill states.
Ketan Patel, managing director of Troikaa Pharmaceuticals said, "While we were waiting for approvals to be in place to start our Sanand unit, we had to get our production outsourced into these hill states. As our expansion plans in the state got delayed for various reasons, around 30-35 per cent of our production had to be outsourced to meet demand."
Industry sources point out that contract manufacturing in these states saves cost and boosts margins,and hence several Gujarat-based companies opt for that.
