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Here's how govt wants Indian pharma to replace Chinese imports

What is more interesting is that the incentive - reimbursement of 10 to 20 percent of the net incremental sales turnover for the first four years, depending on the category you fall - will be calculated only on the revenue earned from domestic sales with a ceiling on the quantity that can be sold

twitter-logoJoe C Mathew | June 15, 2020 | Updated 23:20 IST
Here's how govt wants Indian pharma to replace Chinese imports

Key Highlights:

  • The incentive amount payable will be subject to ceilings on Net Incremental Sales Turnover on which incentive shall be applicable as determined by a government committee
  • Tenure of the Scheme is 7 years for chemically synthesised eligible products and 8 years for eligible products manufactured by fermentation based technology
  • The rate of incentive for fermentation products for the first four years (2022-2023 to 2025-2026) would be 20%, 2026-27- 15% and 2027-28 - 5%
  • The rate of incentive for chemically synthesised products for entire scheme (2021-2022 to 2025-2027) would be 10%

Did you confuse Atma Nirbhar plan of Prime Minister Narendra Modi with government's intentions to raise import tariffs to protect domestic manufacturing? An operational guideline prepared by the government for its Production Linked Incentive (PLI) Scheme for promotion of domestic manufacturing of key raw materials needed to make medicines will clear that doubt. Competitiveness is what the slogan is all about, though, the rigid conditions set by the government could be a dampener.

The operational details, shared with the CEOs of pharmaceutical companies on June 13 indicate that PLI scheme meant to make India Atma Nirhbar or self reliant will run parallel to existing imports of raw materials. The companies availing the benefits under PLI will be expected to manufacture the specific key starting materials (KSM), drug intermediates (DI) and active pharmaceutical ingredients (API) at a price that can match import prices.

The competitiveness factor is so evident that applicants under the scheme will have to convince the approving authority of its capability to be globally competitive to be eligible for the incentive. "The applicant should demonstrate that his manufacturing strategy would preferably be near the import price and over a period of time, the applicant would have profitability even at import price," says one of the pre-conditions set by the government.

What is more interesting is that the incentive - reimbursement of 10 to 20 percent of the net incremental sales turnover for the first four years, depending on the category you fall - will be calculated only on the revenue earned from domestic sales with a ceiling on the quantity that can be sold. Any additional quantity manufactured beyond the capacity stated in the approval letter can be exported, without any benefits under the scheme.

The scheme is also restricted to eligible products manufactured with complete backward integration. However, the next stage in production, even if it involves the products that are eligible for the incentive, has been kept out of the scheme. To illustrate the point, the guideline cites the case of India's heavy import dependence on the key starting materials (KSMs) used to manufacture the active pharmaceutical ingredients (APIs) like Penicillin G/6-APA from which antibiotics like Amoxycillin are made. The scheme limits production incentives to KSMs in such cases, stating there are good number of manufacturing facilities existing in India to produce different APIs like Amoxycillin from the imported Penicillin G/6-APA and the  major objective of the scheme is to reduce import dependency. There are thus 41 eligible KSMs needed to produce 53 APIs or bulk drugs that are eligible for the government incentive.

And there are other conditions as well. The project has to be greenfield, investment thresholds have to be met. Even within the threshold investment, 45 percent has to be in building, plant and machinery. As part of the approval process, a technical committee will vet the scale of economies, the cost of production, potential technological obsolescence and the environmental burden to prevent the industry falling sick post incentive period.

The government will start receiving applications for three months from the day the Department of Pharmaceuticals will call for it.

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