Not to accelerate its operating profits, but to survive this difficult phase of uncertainty is the key objective of the small scale pharma industry, B. Sethuraman, President of The Pharmaceutical Manufacturers’ Association of Tamil Nadu said during an exclusive interaction with SupportBiz.
Sethuraman, who is also the Secretary General of Confederation of Indian Pharmaceutical Industry as well as the Chairman of the Federation of South Indian Pharmaceutical Manufacturers’ Association, traces the origin of the industry’s sloppy ride down back to the excise fee restructuring in 2005. Finance Minister P. Chidambaram introduced a new policy under which the pharma manufacturers outside the excise free zone had to pay 16 percent excise on MRP. Himachal Pradesh, Uttarakhand, Jammu and Kashmir, and Sikkim were made excise free zones forcing many manufacturers and buyers to migrate to these states.
"This really affected us, very badly. The sales came down drastically in south. Our loses are to be read in the context of the Good Manufacturing Practice (GMP) policy introduced by the central government in 2004. Industrialists had to invest heavily on restructuring their units to adhere to the government norms. While this policy was aimed to help the industry, the excise duty regulation followed it really put us in big trouble,” Sethuraman said.
Although the excise duty was slashed to 8 per cent and then to 4 per cent later, the damage was already done to a point where the industry could never bounce back. “This peculiar, unfavorable situation took us to a situation where people began producing costly medicine in the excise free zone and cheaper medicine here, resulting in production loss as we are not able to utilize the full capacity. The excise free attractions virtually ended in those states, resulting the industry losing business as a whole,” he said.
In addition to these, Sethuraman thinks the manufacturing units have to be technically advanced or fully automated to cut down the heavy cost on manpower. SMEs are forced to pay high prices for raw materials, which can only be purchased in small volumes due to financial constraints while the big players buy in bulk. There is a big disparity in gaining financial assistance, faced by SMEs of all categories. While corporate giants get loans at an interest rate of 6-7 per cent, SMEs have to pay 14-16 percent and no bank would offer loans sans collaterals. As Sethuraman notes, close to 100 units have closed down their units in the Chennai region of late and the rest of them are uncertain about their future. MNCs are fast acquiring Indian firms and the small native players have to fight both Indian giants as well as the International ones now.
Sethuraman seeks immediate government intervention to bring about an effective policy change to save the pharmaceutical SMEs from total collapse. He also wants the government to make sure that FDI is only allowed in the export business, and not in the domestic market.