Revised, more industry-friendly PLI scheme for bulk drugs on the cards

A senior government official said the idea to link the incentives to investing in setting up facilities (whether brownfield or greenfield) is to create employment
The production-linked incentive (PLI) scheme to boost local manufacturing of bulk drugs or ingredients to make medicines may be revised to make it more industry-friendly. The technical committee under the Department of Pharmaceuticals has submitted its recommendations this week, sources said. 

If the recommendations are accepted, there may be an interim scheme that would allow manufacturers to claim some incentives when they produce and supply over 40 identified bulk drugs. 

Mahesh Doshi, national president of the Indian Drug Manufacturers’ Association (IDMA), said that if a certain assurance is given to local bulk drug players on at least 10-15 of the identified 41 products, manufacturing can start right away. "Anti-dumping duty, or a 15 per cent Customs duty, to make the Indian products price competitive vis-a-vis China is necessary to encourage people to start producing these bulk drugs," he said. Industry sources said if the government agrees to an interim incentive scheme now, there would be two clear advantages. One, manufacturers would need to shell out a lesser amount (to the tune of a few hundred crores) instead of a larger amount (over Rs 6,000 crore) under the PLI scheme.

Two, this would help manufacturers be prepared to deal with any policy changes from China that can expose India’s vulnerability as it imports almost 70 per cent of the active pharmaceutical ingredients (APIs) from China at the moment. 

The scheme has a perquisite to be eligible for incentives — one has to invest either in a greenfield facility, or set up a new facility within the existing plant premises, or have a brownfield expansion. 

A senior government official said the idea to link the incentives to investing in setting up facilities (whether brownfield or greenfield) is to create employment. "There will be a multiplier effect when one will expand a manufacturing facility," said the official.

Moreover, the bulk drug industry here expects that anti-dumping duty be imposed on imports in order to safeguard their interests. "If the local industry invests to ramp up capacities for making the 41 identified products, there needs to be some kind of an assurance from the government that this investment would remain viable. We want this to be mentioned in the scheme notification," said B R Sikri, co-chairman of the Federation of Pharma Entrepreneurs and vice-president of the Bulk Drug Manufacturers Association of India. 

He also said it was not practical to declare the cost of production now for a scheme where one will be able to claim the incentives after two to three years. The input costs will change, thus changing the calculations. He said since many of the synthetic chemical products can be made now, there was no need to wait for two years to claim incentives after one has made capital investment.

Sikri also said the government needed to re-look at the incentives offered for certain products. "For around 10 bulk drugs, the effective incentive works out to be less than 4 per cent, while for 14 products it is 6-9 per cent. For 17 products in the list, the calculations are fine, and there are no problems with the incentives," he said. 

In July, the government notified the Rs 6,940 crore PLI scheme to boost local bulk drug manufacturing and reducing dependence on imports. Around 53 APIs covering 41 products have been identified by the government for which companies would be eligible for financial incentives if they set up greenfield manufacturing in the country. According to the notification, bulk drugs accounted for 63 per cent of the total pharmaceutical imports in the country in FY19.

India imports bulk drugs largely for economic considerations. Chinese bulk drugs are cheaper by 25-30 per cent on an average compared to domestic products. However, the recent Covid-19 crisis, and the escalation at the borders, exposed India's vulnerability in this area. 

Manufacturers would have to invest Rs 20 crore to set up a new facility, which may be inside an existing manufacturing plant premise and make the selected bulk drugs to avail the scheme.

Current PLI scheme 

Objective: Intends to boost domestic manufacturing of key starting materials, drug intermediates and APIs by attracting large investments, thereby reducing India’s import dependence 

Scope: Financial incentives shall be given based on sales made by selected manufacturers for 41 products that cover 53 APIs 

Incentive: (a) Incentive for fermentation-based products for FY23-27 will be 20%, for FY28 it will be 15%, and for FY29 5%

(b) For chemical synthesis-based products, incentive for FY23 to FY28 would be 10%
Scheme is applicable for greenfield projects. It can be a new plant within the premises 
of an existing plant

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel