Pharma units to invest even as tax holiday nears an end

Himachal’s small and medium enterprises plan investments of Rs 250 crore

Despite poor road connectivity, the cluster of pharmaceutical units located in the Baddi-Barotiwala-Nalagarh (BBN) belt in Himachal Pradesh plan to execute their proposed investments before the scheduled expiry of the existing tax holiday on March 31, 2010.

The BBN belt, located at the foothills of the Shivalik Ranges, is about 60 km from Chandigarh on National Highway 21A. The region has over 450 units engaged in the manufacture of retail and bulk drugs. Most of them are in the small and medium enterprise (SME) category.

The existence of SMEs in the region drove a number of large pharma players to set up shop in this part of the country after the tax concessions for the hill states were announced by the Central government in March 2003.

With the tax holiday likely to expire in March next year, an investment of about Rs 250 crore proposed by the existing SMEs is in the pipeline.

The president of the Himachal Drug Manufacturers’ Association, Sanjay Guleria, said that in the year 2003 there was an excise rebate of 16 per cent for setting up a plant in the hill state, besides income tax exemption for 5 years.

But the excise duty was made a uniform 4 per cent across India last year, and now with the likely implementation of a goods and services tax (GST) with effect from April 1, 2010, Himachal would lose its edge as a tax haven, he said.

“Even then, it remains an attractive destination due to adequate and affordable power (the tariff is Rs 3.21 per unit for SMEs and Rs 2.95 for large units). There are no seasonal shortfalls except for December to February for a very short period of the day.”

The region, according to Guleria, has been doing business valued at Rs 22,000 crore a year, which, he said, is likely to increase manifold.

“The pharma industry per se has been growing at 12-15 per cent per annum, so we have good prospects. Growing health awareness, coupled with rising income levels and government spending, will contribute more in the times ahead. So there is every reason to prepare ourselves for scaling up our volumes.”

Entrepreneurs are also upbeat over the new guidelines issued by the ministry of micro, small and medium enterprises on the proposal of the Central government’s department of pharmaceuticals.

The Credit Linked Capital Subsidy Scheme (CLCSS), under which a capital subsidy of 15 per cent is available to SMEs limited to a project cost of up to Rs 100 crore, has now been expanded to 179 pieces of equipment and machinery, from the earlier 41.

The deputy director general in the Central government’s department of pharmaceuticals, Ashok Kumar Vishandass, confirmed that the department was expecting a good number of queries from the BBN belt, as most SMEs had to defer their expansion plans due to capital constraints.

He disclosed that the department was in the process of preparing a directory of pharma units, to maintain an accurate record of different variables pertaining to Indian drug manufacturers, that would help them design schemes for the growth of pharma units and particularly for SMEs.

The only expectation manufacturers have from the state and Central governments is better connectivity, since the road network is in a state of disrepair, with large potholes on the national highway creating difficulties in transporting liquid drugs.