Solve financing woes to boost pharma exports to Africa: Ashok Agarwala

Pharmaceutical products produced in India, a global manufacturing hub of generics, are consumed domestically and have a very high demand overseas. South African countries are prominent where human health is a big concern hence huge demand & supply gap exists. These countries are underdeveloped, with lower ratio of literacy and lot many problems pertaining to human health.
 
Exporters are trying to take advantage of favourable conditions and are exporting drugs in bulk quantity with substantially higher profit margin in comparison to domestic sale. Problem left is of regular export financing: Normally export is carried out on credit - no easy bank financing is available.  
 
Problem areas
Indian banks being risk averse are not ready to discount even LC opened by South African banks & of other under developed countries. The reason for this is that LC opening bank is not on the panel of RBI. Discounting is done, albeit with many conditions including ECGC cover. Due to these difficulties, small exporter fears to trade in this area of vast opportunities.
 
Government schemes
The government of India under various UN schemes has entered agreements with governments of these South African and other under-developed countries to extend finance through lines of credit.
 
The Exim Bank of India has introduced lines of credits in various under-developed countries for financing export of Indian goods to the foreign country designate. These are aimed at helping poor masses, creating health care facilities, medical hospitals, supplying free drugs, etc.
 
Following is a brief run-down of procedure involved in exporting pharmaceutical products from India:

• Identifying specific health related problems (such as orthopaedics, dental, diabetic, intestinal, etc) and molecule; approval of Indian manufacturing plants by the concerned FDA authority; and followed by issue of import declaration form (IDF)
• Ascertaining the health area where Indian drugs can help in cure thereafter product approval from the countries FDA authorities
• Approval of the products export by Drug Controller General of India (DCGI)
• Inspection and approval of the manufacturing plant by FDA authorities

Immediately before procurement of products from India, importer in South African countries need to obtain Import Declaration Form (IDF) issued on the basis of exporter’s performa invoice. Submission of a copy of IDF duly signed would fulfil most of above requirements of Exim Bank to permit operation of line of credit. Once all these are completed means export is on mutually accepted terms and conditions of genuine exporter and importer only. Therefore, the risk factor would be minimal after obtaining buyers approval. Chances of finance loss are negligible.
 
An agreement is possible between Indian commercial banks and Exim Bank of India, whereby commercial export of drugs is financed immediately on dispatch of products to country designate under the scheme of lines of credit.
 
A win-win deal
The Exim Bank of India should work on above lines. Immediate payment or payment in tranches from procurement of raw material till export would provide a major relief to exporter by improving liquidity of the unit. It will also help in ‘Make in India’ campaign and increase employment opportunities in the country. While exporters would get support, bankers would get good customers. More SMEs will be established in India to export pharmaceutical products. Thus, it will be a win-win situation for all.
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Ashok Agarwala is a Chartered Accountant based in Vadodara