The extension of the subsidy scheme for the hilly states of Uttarakhand and Himachal Pradesh is unlikely to impact the pharma production growth in Gujarat, which is considered to be one of the major pharma manufacturing hubs in the country. Industry insiders feel that is precisely for two reasons, one the income tax and excise benefits have not been extended in the hilly states, and secondly, Gujarat is now trying to position itself as the manufacturing destination for exports.
Only recently the Cabinet Committee on Economic Affairs (CCEA) gave its approval for extension of the Special Package of Industrial Incentive for the States of Himachal Pradesh and Uttarakhand from January7, 2013 to March 31, 2017. According to the scheme, all new industrial units and existing units on substantial expansion would be eligible for a 15 per cent subsidy on their investment in plant and machinery.
R K Baheti, director, finance, Alembic Pharma, a Vadodara-based pharmaceutical company which runs a manufacturing unit in Baddi in Himachal Pradesh said clearly, "The tax benefits are not getting extended, and hence this extension of the subsidy scheme is not a very interesting option to us. We do not have any plans to expanding our Baddi unit. We will continue to manufacture there, no plans to either downsize or expand the unit."
Baddi, an industrial town in Himachal which lies at the border of Haryana, had attracted several pharmaceutical units after the subsidy scheme was announced in 2003. According to market estimates, around 360 pharma units had set up shop in the hilly state, attracted by the tax incentives, which included excise duty exemption on finished products, income tax exemption and capital investment subsidy on investment in plant and machinery, among others. At least 50-60 small, mid-sized and big pharma from Gujarat had moved to Himachal or Uttarakhand to avail the incentives during the period.
As a result, Gujarat had lost some ground as a domestic pharma manufacturing hub. From an over 40 per cent share in domestic pharma production during the early 2000s, the state's share dropped to below 20 per cent in 2010-11 thanks to the exodus of the companies to tax havens. With tax holidays nearing an end, and fresh investments coming into Gujarat ( in terms of new units as well as expansion of existing units), the state's share rose slowly but steadily to around 28 per cent of national production in 2012-13 (around Rs 18,000 crore).
However, the road ahead for Gujarat lies in focussing on export-oriented units. Sunil Parekh, advisor, Crisil pointed out that, "Gujarat has the advantage of having quality manufacturing units which are approved by the regulatory authorities of several countries. Companies had set up units in the hilly states attracted by the tax incentives, but the production is for the domestic market. When it comes to focussing on the exports market, several companies to opt to set up their units or expand in Gujarat,which an established exports hub." He also added that, pharma companies will not put up new units in Uttarakhand and Himachal simply based on short term incentives, and people would wait for the results of the Lok Sabha elections before taking any investment decision.
Parekh seems to be right, as data from the industry shows that during the first half of 2013-14 fiscal, drug production for the domestic market in Gujarat was around Rs 8,500 crore (roughly 27-28 per cent of national production), while it exported drugs worth Rs 7,000 crore (around 28 per cent of national exports). Chirag Doshi, chairman of the Gujarat State Board of the Indian Drug Manufacturers Association said, "While at the end of last year, Gujarat's share in national exports was around 24-25 per cent, it is growing, and is currently around 27-28 per cent." He, however, added at the same time that the official figures are yet to be collated.
Kamlesh Patel, managing director of West Coast Pharmaceutical Works and also the vice-president of IDMA, Western Region too said that extension of subsidy scheme is unlikely to influence decision of pharma companies planning to come to Gujarat. "As a pharma manufacturing hub Gujarat offers better infrastructure than many states. A lot of companies from Maharashtra, when they look at expansion, opt for Gujarat as the state offers cheaper land and other ready infrastructure." As it is, several Maharashtra-based companies have already made a bee-line for Gujarat; these include ACG Associated Capsules, Sava Healthcare and Emcure Pharma, Macleods Pharma, Ajanta Pharma among others.