Interview

'Schedule M was a hasty decision'

Pharma small scale industries have been hit hard with the implementation of Schedule M and setting up of excise free zones. T S Jaisankar, Chairman, Confederation of Indian Pharmaceutical Industry (CIPI) and Director, Quest Life Sciences, shares his views with Sandeep Moudgal.

What are the troubles faced by small scale industries?

Schedule M was conceived on the lines of USFDA. Although Schedule M was a good regulation, it was nevertheless a hasty decision on part of the government. It does have its benefits with quality improvements and other factors, but it should have been gradually phased in. After all, Rome was not built in a day, and it took the FDA nearly 15 years to implement the schedule in the US. This overnight implementation of Schedule M is the biggest problem faced by SSIs in pharma.

What are your veiws on the recent trend of pharmaceutical manufacturers moving to excise free zones? Did it have a negative effect on the disparity in the development of the industry across India?

Each industry requires nearly Rs 1-2 crore of capital investment. And imagine that there are 3,000 such companies in India. That adds up to Rs 6,000 crore worth of dead capital investment. It was virtually a stab in the back by the government following the Schedule M to bring the concept of excise free zones. SSI manufacturers could not negotiate the pricing structure that excise free zone manufacturers brought about.

The Finance Minister outlined excise duties on retail pricing rather than the earlier process of excise duty on ex-factory prices. It became a major concern with the cost shooting up by 25-30 percent. Thus, there was an exodus of companies to excise free zones. And companies that were not in excise free zones started getting comfortable with outsourcing manufacturing to companies that were in those zones. Thus, without having a factory they were enjoying the benefits of the excise free zones. This, I believe, is contrary to the government's idea of bringing the entire concept of excise free zones. Within a couple of years we saw a movement of more than 700-900 companies to these zones.

Did CIPI take any kind of action to solve this?

With the creation of the excise free zones, it was found that excise collection had also dropped. The government conducted a survey and found that the collection of excise duty had gone down by almost 70-80 percent. CIPI did take up the issue seriously and had an audience with the Finance Minister and placed a petition to reduce the duties and dissuade pharma units from moving to excise free zones. But the plea fell on deaf ears. The Finance Minister in fact went to the extent of making statements as to why should CIPI be worried about losses to the government in excise duty. The theory behind this, as presented by the Finance Minister, was that the cost of developing infrastructure in the states was more than the loss incurred by the government from the formulation of excise free zones. Although, the argument was persuasive, it seemed illogical.

A reduction in the excise duty would not only help the government, but would also benefit the consumers and the manufacturers. But following a great amount of lobbying, the government formed the Pharmaceutical Advisory Council. The council comprised of major pharma manufacturers, and even small-scale representatives apart from government officials. The council brought out a pharma policy that encompassed all the aspects of manufacturing troubles. It even brought down the excise duties down to eight percent from 16 percent. By this reduction, companies were discouraged to shift to excise free zones.

Do you think that the recent Novartis case verdict will have a bearing on the business of the small scale industries?

It certainly has not benefited the small scale industries or the consumers. The major beneficiary of this would be the large manufacturer who deals with the drug in the field of oncology because of its off-patent status. The major fear I envisage is the loss of credibility that India will face and hence affect the flow of FDI into the country. With India turning its back on the WTO recommendations and the TRIPs Act, it might lose its FDI to China that is welcoming these pharma companies to set-up shop there.

What does the future hold for SSIs in the pharma industry?

The doors of opportunity have opened up in the recent past for the pharma industry and it needs to be explored. India can match world standards in terms of quality and scientific talent pool. In fact, India has the largest number of pharmacy colleges that are churning out trained people year after year. And with the pharma industry booming globally, it seems that India, with its rising economy, will have a huge share of the pharmaceutical pie. The best indication is that even after such trials and tribulations, only five percent of SSIs have shut shop across the country.

There are enough and more opportunities for manufacturers in the pharma industry. It is only that the government should not interfere in the name of development and add more confusion to it.

sandeep.moudgal@expressindia.com